Stopping greenwashing, not green business innovation

The ACCC believes businesses would be discouraged from investing in sustainable products if their competitors make false claims. Picture: Zoe Phillips

The ACCC’s new draft guidelines on “greenwashing”, released for consultation late last month, foreshadow a tough approach by the regulator to false or misleading claims about the environmental credentials of businesses and/or their products.

Spruiking the crackdown last week to an audience of corporate in-house lawyers, ACCC deputy chair Catriona Lowe suggested that businesses can be disincentivised to invest in more sustainable products by the false environmental claims being made by competitors.

The draft guidelines are not in response to any change in the law. What has changed, Lowe made clear, is the regulator’s desire to take a sterner enforcement approach to this stream of marketing.

The ACCC is aligning itself with an international trend, which saw UN Secretary-General Antonio Guterres calling for “zero tolerance” for greenwashing at the COP27 climate change conference in Egypt last November. The US Fair Trade Commission proposed an update of its “green guides” for environmental marketing in December, and the European Commission adopted a proposal for a directive on “green claims” in March.

While greenwashing is undoubtedly a serious issue, and the ACCC has a valuable role to play in ensuring consumers are not misled, common sense should dictate whether an advertisement constitutes greenwashing or not. Otherwise, businesses may well decide not to promote their environmental credentials or, worse, they won’t innovate eco-friendly products and processes in the first place.

There are various explanations for the emerging phenomenon of “greenhushing” – businesses keeping quiet about their green credentials. Apart from heightened regulatory scrutiny, highlighting the environmental credentials of a product raises questions for some consumers about the effectiveness or quality of the product. In other instances, green marketing has prompted a social media backlash against businesses for not doing even more.

In cautioning businesses to avoid using overly broad and unqualified terms such as “green”, “environmentally friendly” and “sustainable”, the ACCC claims in the draft guidelines that “[a]lmost all products, services or businesses have some adverse impact on the environment”.

But consumers need businesses to market “green” innovations simply and clearly to enable informed purchasing decisions. Consumer support is a major driver of business investment and innovation in – that’s how markets are supposed to work.

And if the narrative is about business activity being inherently bad for the environment, we risk overlooking the important work of businesses in creating innovative solutions to pressing environmental problems.

If our default perspective is that environmental claims exploit naive consumers, we risk discouraging the green marketing that is essential to achieving consumer acceptance of innovative solutions.

The ACCC’s approach to policing this emerging area in our market economy needs to be sensitive to these issues, as well as real world practicalities, to avoid creating an unnecessary burden on businesses that are developing and promoting new, cleaner products.

There are indications that the ACCC will consider whether a business took genuine steps to verify the accuracy of information it relied on, and allowances may be made for small businesses with limited resources. However, businesses should not underestimate the strictness of the approach outlined in the draft guidelines.

Consider the following examples included in the draft guidelines: the ACCC suggests businesses should use a website or QR code to provide a detailed explanation of how their product, service or business approach achieves the environmental benefits claimed. However, they should avoid using scientific concepts or technical terms that consumers may not understand.

Calling a product “recyclable” or “compostable” may be problematic if the required recycling or composting facilities are not available in all locations where the product is sold.

An electric car can be marketed as achieving “zero exhaust emissions while driving”, rather than simply “zero emissions”, due to emissions created in its manufacture.

Even if an environmental claim is literally true, the ACCC cautions against making that claim if similar products or businesses offer the same feature, or if the environmental impact is a legal requirement (unless the business makes that clear).

A third-party environmental certification should not be “disproportionately emphasised”, necessitating judgments of degree.

Businesses should not announce ambitious environmental targets without having in place a defined and achievable path to reach those targets. But in reality, while planning is essential, there are times when businesses (and even governments) need to shoot for the moon and then push hard to make it a reality.

The ACCC reserves special warnings for broad or unqualified environmental claims in “highly polluting industries”, including those that sell or rely on fossil fuels. This, the draft guidelines state, is because “the overall environmental detriment of these industries is likely to overshadow any environmental improvements made by a business”.

Aren’t these “highly polluting industries” precisely the sectors of our economy that should be encouraged to pursue business transformation strategies, in all of our interests?

Addressing environmental challenges is a shared responsibility of businesses, consumers and governments. With the consultation process under way for the new guidelines, let’s hope that calling out the greenwashers won’t be pursued at the expense of encouraging businesses to be part of the solution.

Matthew Lees is a partner in Arnold Bloch Leibler’s competition practice