REGULATORY UPDATE | Greenwashing is the new black: Global regulatory developments
Greenwashing:
The deceptive practice employed by businesses to make false or exaggerated environmental claims. Such misleading practices make it challenging for customers and investors to make informed financial decisions based on accurate and legitimate information regarding a company's ethical practices.
An Australian context
The Australian Competition and Consumer Commission (ACCC) conducted an internet sweep to evaluate the environmental claims made by 247 businesses. The findings revealed that 57% of these businesses had made vague and unclear environmental claims. Within the financial sector, the Australian Securities and Investments Commission (ASIC) highlighted the potential for misleading information when product issuers are unclear about the standards used to assess environmental or social responsibility. Overstating green credentials that do not align with their operations further complicates matters. These issues introduce a degree of uncertainty into an otherwise fair and efficient financial system. ASIC reported a flow of $128 billion into Exchange-Traded Funds (ETFs) with an environmental, social, and governance (ESG) focus. Additionally, there has been a 157% increase in the number of advisers claiming to provide ESG advice since 2016.
To address these concerns, ASIC and ACCC are actively working to combat greenwashing, with an increasing number of infringement notices being issued in the last 6-12 months. For instance, ASIC recently issued an infringement notice of $13,320 to Future Super due to a misleading social media post. The post claimed that "Naysayers don't join together to move nearly $400 million out of fossil fuels," but ASIC determined the statement could not be substantiated and was deemed misleading to consumers and investors. With draft legislation under consideration in the UK and the European Union, sweeping global changes are expected to bring clarity to blurred lines.
Further afield
In May, the United Kingdom implemented stringent regulations targeting greenwashing. The UK Parliament approved a proposal aimed at helping consumers make informed decisions regarding environmentally friendly services and products, while incentivising companies to develop more durable and sustainable offerings. The EU's Greenwashing Directive will ban broad and generic terms such as "environmentally friendly," "natural," "biodegradable," "eco," and "climate neutral" unless accompanied by detailed evidence. The rules around substantiation of these claims will be hotly anticipated. Furthermore, exaggerating product claims (e.g., making claims about an entire product when they are only relevant to a small part or exaggerating the product's life expectancy) will also be prohibited. Substantiation of these claims will have to adhere to an approved methodology. The adoption of official certification schemes or increased reliance on public authorities will be necessary for sustainability claims and product information.
"The era of unspecific claims such as 'environmentally friendly' is over."
Jonny White, Senior Business Director at AMV BBDO
Brands that make false claims may face fines but will likely be subjected to public scrutiny, leading to a loss of goodwill. Practically, there will be increased collaboration between marketing teams, advertising agencies, and legal teams when making environmental claims.
The European Union has also taken action by banning claims of carbon neutrality based solely on offsetting. Planting trees to compensate for CO2 emissions has been deemed inefficient and opaque, with a high-profile investigation by The Guardian revealing that over 90% of forest carbon offsets approved by the leading certifier, Verra, were "worthless."
Companies with genuine and demonstrable environmental credentials have a significant opportunity to differentiate themselves in the market.
Other notable examples of greenwashing include:
- Volkswagen's "Clean Diesel" campaign, where the automaker falsely claimed its vehicles met stringent environmental standards. The ACCC pursued legal action against Volkswagen, resulting in a $75 million fine for misleading consumers.
- Etihad's claims of achieving net zero emissions by 2050 were brought under the spotlight when Flight Free Australia complained the statement was unmodelled and relied heavily on speculative technology, carbon credits and offset programs. Flight Free Australia stated Ethihad's sustainability reports in fact showed an increase in CO2 emissions to 2026, and that it had "significantly understated its emissions". If found guilty, the ACCC could order Etihad to pay more than $50m or 30% of its turnover during the breach period.
