Threading the needle: Increasing transparency and avoiding greenwashing in the energy & resources sector

What you need to know

• Australian consumers and regulators are increasingly focused on, and taking action against, perceived greenwashing by businesses in the energy and resources sector.
• Those same businesses are being called on to be increasingly transparent about their sustainability credentials, and may not have in place robust processes for ensuring compliance with the Australian Consumer Law.
• Recently published ACCC guidance, and judicial commentary, provide helpful lessons to ensure businesses can participate in the sustainability transition, be transparent about their progress, avoid "green-hushing", and comply with their obligations under the Australian Consumer Law.

What you need to do

• Consider whether your business has adequate processes in place to ensure representations to consumers (which may be express, implied or by omission) are true and can be substantiated.
• Be mindful of the risk of greenwashing, especially in aspects of branding or marketing, or in representations that may be conveyed by an omission.
• If possible, follow the recently published ACCC draft guidelines to minimise the risk of enforcement action by regulators, or criticism by third parties.

The challenge for the energy and resources sector

Businesses in the energy and resources sector are responsible for a significant portion of Australia's sustainability impacts. They are also responsible for the majority of Australia's renewable energy production and produce the resources we will need to make a clean energy transition. These issues create a tension in the public reporting and marketing of energy and resources businesses, and their actions to improve sustainability performance.

This tension is exacerbated by the increasing pressure on businesses in the sector to be transparent about their sustainability performance. There is also a strong commercial incentive to promote green credentials to the growing cohort of consumers who care deeply about sustainability performance and will vote with their wallets, let alone to maintain a social licence to operate.

"Greenwashing" (which is a term first coined in the 1980s) is the increasingly common label for when businesses get this wrong, and convey claims about their environmental or sustainability performance that are false or misleading, or cannot be substantiated. In this fourth article in our series on IP issues in the energy and resources sector, we explain what greenwashing is, how regulators are responding, and how businesses can avoid falling foul of the various rules.

When do you need to be mindful of greenwashing concerns?

Greenwashing risks arise every time your company conveys a message to its consumers and the public.  This includes:

1. Express messaging – including reports, advertising claims, all forms of marketing (especially the use of sustainability logos and symbols) and social media content; as well as
2. Implied messaging – including any messages conveyed by your branding and colours, livery and get-up on plant or uniforms, website design and product packaging.

Importantly, greenwashing can also arise from messages that are conveyed by omission.

Regulator focus

Greenwashing is a significant focus for Australian regulators. It is listed on the 2023 enforcement priorities for both the Australian Competition and Consumer Commission (ACCC) and the Australian Securities and Investments Commission (ASIC). There is also a current Senate inquiry into greenwashing, which specifically refers to claims made by industries in the energy sector, which is due to report by 28 June 2024 (extended from 5 December 2023).

ASIC and the ACCC have each been active in taking enforcement action in the area, as demonstrated by the following examples.

• On 27 October 2022, ASIC issued an infringement notice against Tlou Energy Ltd, for Tlou's claims that electricity produced by a gas to power project would be "low emissions" and constituted "clean energy" on the basis that these claims were not substantiated.
• In March 2023, the ACCC conducted an Internet Sweep of Environmental Claims, including 25 businesses in the energy sector, and found that 57% of claims raised concerns (including 64% of the surveyed businesses in the energy sector).
• In May 2023, ASIC released Report 763 summarising ASIC's recent greenwashing interventions and enforcement action in relation to greenwashing concerns.

There have also been a range of private actions.

How do you avoid greenwashing?

The "golden rule" for branding and marketing claims, in all sectors, is to ensure that any representation to consumers is true and can be substantiated. However, it can be difficult to apply this high level and general principle to such a complex area. There is also now a related phenomenon of "green-hushing", in which businesses faced with the risk of criticism or reputational harm, decide to remain silent on sustainability performance – which may be to the detriment of the global sustainability movement.

ACCC Draft Guidance

Helpfully, in July 2023 the ACCC released Draft Guidance for Business on Environmental and Sustainability Claims, which sought to respond to the "concerning conduct" identified by the ACCC's Internet Sweep (discussed above).

The ACCC's draft guidance sets out eight key principles businesses should consider when making environmental and sustainability claims, noting that a "claim" may also be made by the impression created from marketing or branding, or by an omission.

Principle 1. Make accurate and truthful claims

Ensure all claims are true and accurate. Only make claims that represent a genuine environmental impact and do not exaggerate the benefits or level of scientific acceptance of a claim.

Principle 2. Have evidence to back up your claims

Ensure you have clear, credible evidence to back up your claims and ensure that evidence is easily accessible to consumers.

This is particularly relevant for representations about future matters (e.g. a promise, forecast or prediction).  Under section 4 of the Australian Consumer Law, where a representation is with respect to future matters the evidentiary burden swings to the business making the representation to prove that it had a reasonable basis for doing so. This is a reversal of the usual position that the party challenging the representation must prove that there were no reasonable grounds for making the representation.

This is particularly relevant to greenwashing, as many claims about sustainability relate to what will happen in the future. Helpfully, however, the Full Federal Court confirmed in a 2020 ACCC enforcement matter that "biodegradable" and "compostable" were not representations with respect to future matters, and instead were representations about inherent characteristics of a product: Australian Competition and Consumer Commission v Woolworths Group Ltd [2020] FCAFC 162.

Principle 3. Don’t leave out or hide important information

Consider all relevant information about your business' environmental impact and be transparent about it. Do not leave out important details, even if they are negative aspects of your business' products or services.

Principle 4. Explain any conditions or qualifications on your claims

Theoretical environmental benefits, which are not clearly explained to consumers, may be misleading. If claims are only true in certain circumstances, the relevant circumstances should be explained to consumers and not simply treated as assumed knowledge.

Principle 5. Avoid broad and unqualified claims

The ACCC considers that broad and unqualified claims can be interpreted widely, inflate a product or brand's sustainability profile beyond the extent justified and more easily mislead consumers. Therefore, businesses should always try to make clear, specific claims with prominent disclaimers if necessary.

Principle 6. Use clear and easy-to-understand language

Avoid the use of overly complex scientific or industry-specific language. Technical terms may overwhelm and/or confuse consumers. You should use clear and easy-to-understand language in your marketing and/or sustainability materials.

There is a potential tension between this principle and principle 4, which requires technical limitations and assumptions to be explained.

Principle 7. Visual elements should not give the wrong impression

Avoid using images and visual elements which may create or contribute to a misleading impression about the environmental benefits of your product or service. This may include certain colours in livery or get up (such as green or blue), images of plants, animals or the earth, and widely recognised symbols (such as the mobius loop for recycling).

Logos or certification marks must only be used where authorised by the certifying body, and in accordance with any terms and conditions.  Businesses should also be careful to avoid using symbols or marks that give the appearance of some third party certification, although the risk is this occurring is relatively low in the energy & resources sector.

Principle 8. Be direct and open about your sustainability transition

Transparency and honesty are key. The draft ACCC guidelines warn that overly aspirational claims may be misleading or deceptive, unless businesses have developed clear and actionable plans as to how they will achieve their environmental goals.

The ACCC also observes that transitioning to greener practices is not linear and businesses should avoid representing that they will make a linear, sustained transition without substantiating evidence and plans.

The draft guidelines may impose requirements that are stricter than the true position at law. However, businesses must also factor the time and cost of litigation, and the negative press of being accused of greenwashing, into the design of their processes for vetting representations to consumers. Following the guidance published by one of the key regulators is a good practice to minimise the risk of enforcement action, even if that enforcement action might ultimately be successfully defended if ever litigated.

The ACCC Chair, Gina Cass-Gottlieb has also acknowledged feedback on the issue of green-hushing, and indicated that the ACCC will consult and seek to develop further practical guidance. In particular, the ACCC has already proposed specific guidance in relation to emissions reduction and offset claims (see 1 September 2023 speech).

Environmental and planning law

This regulator focus and draft ACCC guidance are consistent with the increase in regulatory controls and mechanisms seeking to improve the substantive environmental performance of Australian businesses.  For example, the Commonwealth Government's increased focus on corporate sustainability accountability in the context of recently codified commitments (via the Climate Change Act 2022 (Cth)) to 2030 emissions reduction targets, and net zero emissions by 2050).

The ACCC guidance is also complementary with the mandatory climate risk disclosure regime being developed by the Commonwealth Treasury. This mandated climate-related regime proposes that climate reporting in Australia should be made against the more stringent International Sustainability Standards Board's (ISSB) framework as the emerging baseline (which we reported on, in the context of the UK, here).

These developments are indicative of the Australian Government's movement towards more proactive environmental regulation frameworks that prioritise genuine sustainability transitions and, importantly for greenwashing concerns, the dissemination of accurate information to Australian consumers about the sustainability performance of businesses.

The ACCC guidelines are also consistent with the approach of regulators in other jurisdictions, notably the European Union which recently adopted a 'Directive on Green Claims'.

Next steps

The energy and resources sector is, and will continue to be, subject to intense public and regulatory scrutiny regarding its sustainability performance and claims. The sector is also under increasing requirements to disclose more about its sustainability performance.

Businesses should be mindful of greenwashing risks in any interactions with consumers, in particular, noting that representations may be implied or made by omission.  Whenever assessing the risk, be mindful of the "golden rule" and consider and seek to comply with the ACCC draft guidance where practical to do so.

Authors: Anita Cade, Partner; Tony Hill, Partner; Tim Rankin, Senior Associate; Karen Wang, Lawyer; Rebel O'Connor, Graduate; and Emma Turner, Graduate.