Check against delivery.
It is a pleasure to be speaking today on a topic that I, like so many other Australians, am passionate about.
First though I’d first like to acknowledge the Gadigal people of the Eora Nation, the traditional custodians of this land, and pay my respects to their Elders past, present and emerging.
Consumer and fair trading issues relating to environmental claims and sustainability are a current priority for the ACCC. As consumers and businesses become more focused on sustainability to inform their purchasing decisions, businesses are increasingly advertising their ‘sustainability benefits’ to sell their goods and services.
This is not new.
Businesses for many years have sought to capitalise on consumer preferences when advertising goods and services. “Fat free”, “sugar free”, “guilt free” are all slogans that I’m sure you’ve seen over many years.
As consumers demand more ethical and sustainable practices from businesses, and are often prepared to pay more for them, we see claims like “environmentally friendly”, “sustainable production” and “compostable” becoming more prominent on our supermarket shelves. When purchasing clothes, it’s no longer just about how it looks. Consumers are also looking at environmental and ethical claims to inform their decisions.
So, what do these claims actually mean to consumers? Are these claims of any value to them? What impact do unfounded claims have on businesses that have stricter sustainability and governance practices?
Many businesses are currently undergoing the transition process to be more sustainable to meet government requirements, shareholder and consumer demand or because it is the right thing to do for the planet. How do these businesses promote the steps they are taking in this regard in a way that consumers can understand?
Today I’d like to explore the position of consumers and ‘greenwashing’, examine some of the challenges that businesses and consumer regulators like the ACCC face and put forward a number of suggestions on how we can meet these challenges.
Environmental and sustainability claims are designed to influence consumer behaviour
Making sustainability work for business and consumers requires a multi-pronged approach. Through the consumer law, the ACCC plays a part in this by ensuring that businesses tell the truth, but there will also be roles for standards bodies, certification schemes, industry and governments via policy reform.
Sustainability covers a broad range of issues which are often incredibly complex, so this is easier said than done.
For example, sustainability initiatives can cover reduced materials usage, lower emissions, improved disposal, and increased circularity. Each of these benefits are very different and have their own unique impact on the environment. This can make it challenging for consumers, businesses, and regulators to navigate and solve problems relating to sustainability.
Consumers are faced with various purchasing decisions every day and make these decisions based on what is important to them. Price, where the product comes from, what the product is made of, is it organic and now increasingly, the impact that the product or business has on the environment.
Advertising is a powerful tool in influencing consumers’ perceptions and purchasing decisions. This is particularly the case when it comes to green claims. Greenwashing is ultimately a form of advertising. And perhaps more so than many other types of claims, green claims involve a huge element of trust as you usually can’t tell just by looking, or even using, whether or not claims are true.
Information asymmetry is a key problem here. It is difficult for consumers to verify the accuracy of a green claim as consumers are always going to have less information than the business making the claims. For example, a product may be labelled as being made from recycled materials. Consumers can’t independently verify where the materials come from, or whether the business audits their suppliers, or if they do, how robust that audit is.
Consumers often rely on trust marks, including certification trademarks, which provide products and services with increased legitimacy to their claims.
Information to verify claims, including the standards and criteria that lie behind trust marks, is often completely separate to, for example, the claim made on a product. It is often detailed and complex. Often it requires research into other entities, standards and processes. Sometimes it is completely unavailable.
Many consumers are time poor, and only a very small portion of consumers will spend time researching an environmental claim prior to purchase. This is particularly the case where consumers are making everyday purchases at the supermarket or at a clothing retailer. Most consumers are not going to do the research required to verify claims when standing in aisle 12 at their local supermarket when choosing between two brands of detergent.
Clarifying or qualifying information on a website will generally not displace the overall impression that a consumer makes based on the advertising, slogans or trademarks used.
Consumers generally need to take at face value that claims made are truthful, and accurate. This gives rise to the greater likelihood of consumers being misled, and unfortunately can also be knowingly exploited.
Greenwashing erodes consumer trust
Ultimately the objectives of regulators and businesses are the same – ensure that there is consumer trust and confidence in the market. False or misleading sustainability claims undermine consumer trust in all green claims and reduces confidence in the market – something the ACCC is keen to guard against.
Unfortunately, the ACCC is hearing growing concerns that some businesses are falsely promoting environmental or green credentials to capitalise on changing consumer preferences. Sometimes despite best intentions, businesses may inadvertently mislead consumers for a variety of reasons, such as a poor understanding of their supply chain, a lack of due diligence before making marketing claims, or poor reporting practices. But there is also an element of the market that will deliberately ‘fudge or bend the truth’ and will create a misleading impression to meet consumer expectations.
Also, as I mentioned earlier, a business’s sustainability transition usually doesn’t happen overnight – it can be a long process up and down the supply chain. We recognise that businesses should be able to promote the steps they are taking in this transition. But claims made in this area can be tricky. While businesses may look to use short and snappy slogans and claims, rather than lengthy explanations of measures underway, it is important to convey accurate information to consumers. Businesses in these positions need to be careful to not overstate the status of their transition through the claims they make.
We are also seeing more businesses engage in corporate rebranding to appear ‘greener’. However, broad statements about corporate sustainability may not always fully align with the products or services being provided. From a regulator’s perspective this is an ongoing area of interest for both the ACCC and ASIC. These rebranding exercises are complex, often involving significant investments in government-backed offset schemes. While these measures are often done to address shareholder concerns, the same basic test under the consumer laws must be considered – what does the ordinary consumer understand by the advertising or branding material. ASIC has recently released guidance for superannuation and managed funds on this.
Vague and generic claims are problematic in relation to sustainability measures. Broad terms like ‘environmentally friendly’, ‘green’, or ‘sustainable’ have limited value and may mislead consumers, as they rarely provide enough information about what that exactly means in terms of the product or service consumers are considering purchasing.
Take the hypothetical of a business labelling its product as ‘environmentally friendly’ because it has switched to a production process which generates less emissions. However, the product is unable to be easily repaired and its components cannot be reused, which means that the product contributes to growing landfill. Most consumers are unlikely to agree that this product is environmentally friendly even while appreciating any remissions reductions.
In other instances, we see the use of terms such as ‘compostable’ or ‘biodegradable’. Businesses will often use these terms relying on specific scientific meanings of the terms, or how the terms are defined under Australian or international standards. However, these ‘technical’ meanings often differ from what an ordinary consumer might understand or expect. Some claims may also be technically true from a scientific perspective but are misleading when considered in the context of how the consumer is likely to use the product.
For example, consumers are unlikely to understand the use of the bare term ‘compostable’ to mean that a product is compostable but only under specific industrial composting conditions. They’re also unlikely to understand that there are limited disposal options or industrial composting facilities available in Australia at this time, and therefore that the product is unlikely to ever be composted. Claims should not only disclose the inherent capabilities of a product, but also the steps a consumer needs to take to ensure that these capabilities are fulfilled.
We also see many examples of businesses making claims about their products, without providing any information to consumers to substantiate the claims. 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. Trust me, where we have concerns, we will be asking businesses to substantiate their claims.
There are a number of trademarks that businesses may use in advertising and on packaging to help ‘sell’ their green credentials. As I have already noted, these can be quite influential for consumers, as they interpret trust and certification trademarks as providing more legitimacy to a product’s green claims. While we acknowledge the efforts of businesses in taking steps to have their products and processes independently verified, it is also important that trust marks and trademarks are not misused and there are appropriate verification processes in place.
Some certification trademarks have a long history and there is significant consumer confidence in these marks. However, there has been a significant increase in trademarks globally, which has been further complicated by businesses creating their own trademarks rather than seeking independent certification. Unfortunately, this means that trademarks and other symbols can be used in ways which may confuse or mislead consumers.
It is not possible for a consumer to understand what every trademark actually means and most time poor consumers are unlikely to spend time corroborating the impression conveyed by a trademark on packaging with any explanatory information available about the trademark. The value of trademarks can be diminished if there is consumer uncertainty or confusion.
A good example of how symbols can confuse consumers is the resin identification symbol. This is the chasing triangle symbol used on packaging to indicate which type of plastic it is made of and uses elements of the universal recycling symbol. As consumers have an established understanding of what the recycling symbol means, this visual similarity can lead to consumers believing that packaging is recyclable when it may not be, or may not be in their collection area.
We have also seen examples of trademarks that provide a misleading impression to consumers where the relevance of the trademark is limited to only minor aspects of the product or business, but this limitation isn’t adequately disclosed, or where the certification process itself is not robust. Both businesses and certification bodies need to ensure that trademarks are used appropriately and are not designed to exploit consumers’ misconceptions or beliefs.
Finally, it is important that consumers can place their trust in environmental claims at all levels of the market. At the higher end of the market there’s been an increase in consumers considering electric vehicles and solar panels. While the ACCC will be considering issues in these sectors, we’re aware that for many consumers, such products remain unaffordable. That’s why we’re looking at environmental and sustainability claims across the economy, including in everyday consumer purchases.
There are both challenges and opportunities for businesses
Improving the veracity of environmental and sustainability claims is not just about protecting consumers. It’s also about ensuring competitive conduct in the market. Many businesses go to extraordinary lengths to make their processes, products and services more sustainable. 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.
That said, improving sustainability claims is not easy for many businesses and can present challenges at both the product and business level, particularly for businesses at the end of a long supply chain. For instance, it can be difficult to untangle the often complex and opaque supply chain to determine the true environmental impact of a product. Businesses should be wary of making any general claims if they do not know the environmental practices and impacts of each of the businesses involved in its supply chain. (Though increased usage of block chain technology my assist here).
There are also increased costs involved with:
- Improving processes and materials;
- Investigating the entire supply chain for a product; and
- Conducting scientific testing to determine a product’s impact.
The absence of relevant government regulations may also make it difficult to implement certain environmental improvements. Many businesses have raised concerns with the lack of a common definition or standard in Australia for terms such as ‘biodegradable’, ‘recyclable’ and ‘compostable’ as there is no benchmark for which a product’s performance should be measured against.
The ACCC will soon be commencing an internet sweep of various environmental claims made by Australian businesses and we will release more information on this soon. However, a similar review undertaken by ICPEN, the International Consumer Protection Enforcement Network in 2020, found that 40% of environmental claims were potentially misleading and required further investigation.
The ACCC will be using this data from the internet sweep to update guidance for business and information for consumers on environmental claims. While in some respects our work is just starting, we have been fortunate to learn from our international counterparts, particularly those in Europe and the UK. For example, the Netherland’s sum up their guidance for honest sustainability claims with 5 key rules of thumb:
- Make clear what sustainability benefit the product offers
- Substantiate your sustainability claims with facts & 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.
Recent enforcement action by our colleagues in the Netherlands against H&M and Decathlon will see these two large global business remove or amend misleading sustainability claims. The action in Netherlands will hopefully see a flow on benefit for Australian consumers.
To increase consumer confidence in environmental claims, and to protect those businesses that legitimately make environmental claims, it might be necessary to consider introducing clearer standards and regulations. This is something that the ACCC will continue to consider in consultation with relevant stakeholders. However, this is just from an Australian perspective and the inconsistency in standards from a global perspective presents several additional challenges for businesses. While implementing solutions to this may be outside the ACCC’s remit, this is yet another piece of the puzzle in making sustainability work.
How businesses can improve their environmental claims
But enough about the problem. Let’s move onto solutions.
There are many steps that businesses can take to improve their environmental claims, some of which I will go through now. The ACCC will also be working through these issues and seeking to provide practical guidance to businesses through our work on this compliance and enforcement priority.
First, businesses should ensure that their claims are clear and specific and avoid using vague language (such as ‘green’) to describe their products or services. Any claims made should also detail the specific part of the product or process being referred to and be easy to understand.
Businesses should also avoid the use technical language where possible. Most consumers don’t have knowledge of relevant scientific concepts and specific industry standards. Businesses should also avoid reliance on technicalities – claims which are technically true, but only if certain conditions are met in practice.
Similarly, while standards can be a useful tool to guide businesses, they should be wary which standards they rely upon to substantiate their environmental claims. Many standards have been developed by those who have a vested interest in ensuring that the standards they are required to comply with are not robust. There are many standards which are dated and require review. It is important that independent environmental experts are instrumental in this process.
Secondly, businesses should ensure that they are considering the entire lifecycle of a product when making environmental and sustainability claims. If a claim only relates to one aspect of the product lifecycle, this should be made clear to consumers. Businesses should also not attempt to hide or downplay any negative impacts. For example, if a product uses less water to produce, but the process results in higher emissions.
Thirdly, businesses should also be transparent about their products and environmental policies, to allow consumers to make an informed choice. This may mean ensuring that information about various environmental indicators is publicly available.
For example, businesses may publish information about resource use and waste management, the types of materials used and how they are sourced, product durability and repairability, and any circularity initiatives. Also relevant are energy use and emissions, water usage and pollution, chemical use and disposal, and deforestation, land or aquatic degradation and associated biodiversity impacts. Any information and data provided should be truthful and robust.
Businesses can also think creatively about how this information can be presented, particularly for products sold in brick-and-mortar stores. Some ideas include the use of QR codes on product packaging, which lead consumers to further information. Summaries and infographics may also be useful, instead of lengthy written documents. Businesses should avoid claims that would require consumers to read large volumes of substantiating information to understand what the claim means.
Finally, businesses should also think about collaborating with reputable third-party certification bodies. This can not only help consumers make decisions but provide guidance to businesses on how to improve their practices. If businesses do obtain certification, they should still be careful to not misrepresent its meaning or significance.
Unfortunately, there are few quick wins in this space, and it may take some businesses many years to improve their environmental credentials. While businesses can promote any progress that they are making towards achieving environmental goals, they should be careful when doing so. It should be very clear to consumers what the business has actually achieved, and what is still in progress. Any announced aspirations should also have a plan in place to achieve them.
And finally, the ACCC’s approach to green claims
The ACCC is actively monitoring green claims in the market and will be considering what steps can be taken to improve their integrity. This will include engaging with industry and producing guidance for businesses.
The ACCC is not the only regulator interested in these types of claims. We are working closely with other regulators, including ASIC and the Clean Energy Regulator. We will be taking a coordinated approach to addressing the broad range of issues relating to sustainability.
The ACCC won’t hesitate to take enforcement action where we see that consumers are being misled or deceived by green claims – just as we did against VW for false representations about compliance with Australian diesel emissions standards. In that matter the Court ordered VW to pay $125 million in penalties.
In looking at claims, we are concerned about what the ordinary consumer will understand a claim to mean. While a claim may be technically true, this does not necessarily mean that it will not mislead consumers.
To better understand what consumers think we will be using some of the same methods that businesses use to determine how consumers respond to specific advertising techniques, things like focus groups and surveys. These methods will help unlock valuable consumer insights about how consumers perceive and understand express and implied environmental representations. We’ll be doing this because misleading or deceptive conduct is ultimately about the impact and the effect it has on the ‘ordinary consumer’.
An ordinary consumer generally isn’t someone that has undertaken extensive scientific research into the composition of a product. They aren’t someone that has extensively reviewed all the extrinsic material used to back up a marketing claim. And they certainly aren’t someone that has detailed knowledge of the complex supply chains involved in the manufacturing of a product.
Where warranted, we will also consider the potential need for policy reform. For example, whether there is a need for greater regulation around the meaning and use of specific environmental claims.
Before I finish off, I invite you all to step into the shoes of a consumer who is looking to make a more sustainable purchasing decision. Before making any environmental and sustainability claims about your product or overall business, consider the following questions:
- What does an ordinary consumer understand these claims to mean?
- Does your product or business live up to this understanding?
If the answer to the second question is no, I encourage you to take a step back and consider whether you are at risk of greenwashing.
Thank you for having me here today, and I look forward to seeing our collective progress on this fundamentally important issue in the years to come.