How should lawyers respond to regulatory crackdowns on greenwashing?
Following the ACCC’s announcement about plans to target greenwashing this year, Lawyers Weekly spoke with a lawyer specialising in climate risk, to understand the regulatory landscape in Australia, and how lawyers and firms should approach these unfolding changes.
“There’s definitely an increased focus by regulators on sustainability and greenwashing,” said Persia Navidi, partner at Hicksons Lawyers.
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“We’re starting to see investigations by ASIC into companies for alleged greenwashing,” she said, and ASIC has confirmed that sustainable finance practices are going to be a key target for the regulator.
“We are also seeing litigation trends emerge, both here and overseas,” said Ms Navidi.
“There’s likely to be mandatory disclosure requirements related to financial risks on the horizon in Australia,” she noted, “It’s something we’ve seen happen overseas in the UK and New Zealand — it’s only a matter of time before it hits Australia too.”
Ms Navidi said that organisations, and in particular company directors, who are making sustainability disclosures to the market and their insurers, are wanting to know about what they should be doing to manage their sustainability risks.
“This is only going to be increasing in significance for lawyers in the ways that they advise their clients,” she said.
Ms Navidi said that for lawyers to be effective, it is important for them to understand the constantly evolving regulatory landscape and frameworks.
“It’s important to be aware of what’s happening, what the trends are, and then consider how it impacts clients, company directors, and organisations,” she said.
“It’s something that’s changing constantly,” she said. “It’s important for lawyers to stay on top of developments so they can appropriately advise clients.”
“Through the lens of what regulators are doing now — ensuring that any statements made publicly are accurate, are substantiated — that’s really what it comes down to.
“There is a lot happening in this space, and it’s only likely to increase,” she said.
On 20 September, ACCC deputy chair Delia Rickard announced that the ACCC will be responding to growing concerns that some businesses are falsely promoting environmental or green credentials to capitalise on changing consumer preferences.
Businesses may deliberately or inadvertently mislead consumers, they may lack understanding of their supply chain, lack due diligence before making marketing claims, or may bend the truth to meet consumer expectations, noted Ms Rickard.
It is important that consumers can place their trust in environmental claims at all levels of the market, said Ms Rickard.
“Many businesses go to extraordinary lengths to make their processes, products and services more sustainable,” she noted.
“This innovation and investment should be protected from unscrupulous behaviour of other businesses making green claims without incurring the same costs.
“This can have a chilling effect on investment in this space, as businesses are not able to realise the full benefits of making environmental improvements,” Ms Rickard said.
The ACCC will respond by looking at environmental and sustainability claims across the economy, including in everyday consumer purchases, and will actively monitor claims in the market, and consider what steps can be taken by businesses to improve their integrity.
The ACCC will also do an internet sweep of various environmental claims made by Australian businesses.
Sustainability initiatives cover a variety of ESG and sustainability matters, making it challenging for regulators; the ACCC will work with ASIC and the Clean Energy Regulator and take a coordinated approach to address the broad range of issues.
The ACCC will also consider policy reform, such as introducing clearer standards and regulations.
Ms Rickard said that businesses must be ready to substantiate any environmental or sustainability claims when marketing their goods.
“It is important that businesses can back up the claims they are making, whether through reliable scientific reports, transparent supply chain information, reputable third-party certification, or other forms of evidence,” Ms Rickard said.
“The ACCC won’t hesitate to take enforcement action where we see that consumers are being misled or deceived by green claims,” she said.
The ACCC made several recommendations on how businesses can improve the veracity of their claims.
Vague and generic claims are problematic, said Ms Rickard.
“Broad terms like ‘environmentally friendly’, ‘green’, or ‘sustainable’ have limited value and may mislead consumers, as they rarely provide enough information,” she said.
Ms Rickard said that businesses could take note of the five key rules of thumb for honest sustainability claims given in the Netherlands:
- Make clear what sustainability benefit the product offers;
- Substantiate your sustainability claims with facts and keep them up to date;
- Comparisons with other products, services or companies must be fair;
- Be honest and specific about your company’s efforts with regards to sustainability; and
- Make sure that visual claims and labels are useful to consumers, not confusing.