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Why accountants must be alert to shady green claims

Regulation

Businesses increasingly market themselves as environmentally sound, but accountants must be aware of the risks and inject a note of caution.

By Trevor Withane 11 minute read

With their commitment to rooting out greenwashing, the ACCC and ASIC have put the corporate world on notice. Accountants advising businesses should be raising awareness of this issue.

The environment is currently top of the agenda and consumer appetite for sustainable business practices, services and products has hit an all-time high. In an effort to reflect and respond to this, businesses have shown a remarkable eagerness to adopt and innovate environmentally focused programs and to market themselves as green.

However, alongside positive consequences, there is an increased risk that companies might find themselves becoming vulnerable to accusations of greenwashing. In an attempt to maintain and increase revenue, companies may, innocently or otherwise, exaggerate their green credentials or future green credentials.

Greenwashing can give rise to civil claims (including class actions) and intrusive, public and punitive regulatory action. In the civil context, by way of example, investors who invest in a company on the basis of its green credentials may seek to recover their loss if the investment falls in value and they relied on the representations as to the company’s green credentials but found those credentials are found to be misleading or deceptive.  

Is greenwashing a prevalent issue?

Instances of greenwashing abound. The ACCC recently conducted an internet sweep of 247 businesses and revealed that 57 per cent had made claims that it considered amounted to greenwashing. The ACCC has committed to investigating a number of these green claims further.

ASIC has also shown a particular interest in pursuing claims of alleged instances of greenwashing, having brought civil penalty proceedings in the Federal Court against Vanguard Investments in July this year. The claim alleges that investments made by the Vanguard Ethically Conscious Global Aggregate Bond Index Fund were not properly researched and consequently exposed investors to several oil and gas-related companies. This follows similar action by ASIC against Mercer Superannuation, earlier this year.

What is greenwashing?

The ACCC has defined greenwashing as the making of “environmental claims that are false or misleading … that mak[e] a product, service or business seem better or less harmful for the environment than it really is”.

While the allegations against Vanguard and Mercer appear relatively clear cut, in most instances the line between marketing and misleading might not be so easy to draw. In response to this, the ACCC has released draft guidance, enumerating eight principles that are instructive as to the best practice when making environmental claims. This can be invaluable in protecting your company from greenwashing accusations.

  1. Make accurate and truthful claims

Environmental claims must be truthful and cannot be based on a dubious scientific basis, claim a greater impact than they actually have or simply be a statement of compliance with the law wrapped up to look like an additional commitment. This also entails a degree of transparency as to the evidence that is being relied upon and refraining from making unrealistic future goals.

  1. Have evidence to back up claims

On a similar note, evidence is essential to making any environmental claim. It is best practice to make sure that there is some degree of independent verification of facts provided by a third party where this might be reasonably practicable. The quality of your evidence is also important and scientific research should be widely accepted.

  1. Do not hide important information

Important information should be as legible as possible and, as such, should not be hidden in small print.

  1. Explain any conditions or qualifications on claims

If a product’s environmental benefit is contingent on other factors, this must be explained. For instance, if a biodegradable material needs to be exposed to sunlight and oxygen in order to decompose, this should be clearly stated in any promotional material.

  1. Avoid broad and unqualified claims

Companies should avoid the classic, broad slogan-type descriptions such as “eco-friendly” or “sustainable” in favour of more specific descriptions. Not doing so might open up the description to a sustainable greenwashing claim.

  1. Use clear language

Descriptions should not be obscured in complicated, technical language but should be tailored to communicate simply to a broad range of consumers.

  1. Visual elements should not give the wrong impression

The use of nature imagery or certain symbols (such as the Möbius loop) should be very carefully limited so as not to appear misleading as to the actual environmental impact of the product.

  1. Be direct and open about your sustainability transition

Carbon neutrality is becoming an increasingly popular objective and consequently vastly exaggerated claims are becoming more and more common with respect to companies’ sustainability transitions. It is essential that companies are honest about their progress and that they explain how their sustainability transitions are taking effect.

For example, if carbon offsetting is being implemented in order to decrease the company’s carbon footprint, it should be clear how this is being done and at what point the company will actually be carbon neutral. If this involves planting trees, it could be several decades before any claim of carbon neutrality is tenable.

The significant increase in regulatory attention to greenwashing will likely become only more significant in future. It will become increasingly important to safeguard and adopt a principle-based approach with respect to the environmental claims a company makes.

While this guidance will be helpful to accountants making green claims about their own businesses, it should also be on their agenda to bring this issue to the attention of the businesses they advise. Given the global priority afforded to environmental objectives, greenwashing will be a key risk for businesses to manage for the foreseeable future.

Trevor Withane is a litigation lawyer at Ironbridge Legal.

 

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