Greenwashing: golden rules for green claims

As consumers and investors continue to prioritise environmental sustainability in their purchasing and investment decisions, businesses increasingly strive to present their products and services as ethical and environmentally conscious. That requires a delicate balance to ensure that promotional activities remain authentic and do not trip into exaggeration – or ‘greenwashing’ – a practice which has increasingly drawn the attention of climate advocacy groups and regulators. As the risks of greenwashing increase, and enforcement action becomes more prevalent, there are various strategies and recommendations which businesses should keep in mind when seeking to legitimately promote their ESG credentials:

Avoid Vague Statements

As the Commerce Commission warns in its guidance on Environmental Claims, vague claims can be difficult for consumers to understand, which increases the risk of litigation or regulatory scrutiny. In July 2022 various environmental groups issued proceedings against Dutch airline KLM, alleging that adverts promoting its broad “Fly Responsibly” campaign was misleading as it was not suitably clear. Similarly, an advertisement which stated that Persil detergent was "kinder to our planet" was found by the UK's Advertising Standards Authority (UK ASA) to be vague and unclear, where the headline messaging accompanied a range of imagery covering various environmental issues.

Rely Cautiously On Third Party Claims

When relying on external tests or surveys to back up ESG claims, businesses should make sure that they understand the test results and interpret them correctly. Claims based on test results must not embellish the environmental performance of the relevant products, which is important both to ensure that claims are substantiated (as the Fair Trading Act and Financial Markets Conduct Act require) but also so that businesses have a better prospect of relying on various defences under those Acts (which permit reasonable reliance on third party materials). If businesses fail to take reasonable precautions and exercise due diligence when relying on inaccurate third party materials, they are more likely to be held liable for those inaccuracies. For example, in 2019 Kiwipure was found guilty of making unsubstantiated claims about what it described as “scientifically proven” benefits of its magnetic water filtration system, in circumstances where it had relied on speculative observations in a Japanese University report from 2005.

UNDERSTAND YOUR PORTFOLIO (ESG FUNDS)

For ESG funds and similar products, it is important to ensure that disclosures and marketing materials accurately describe the specific categories of investments targeted by the fund, as well as any screening filters to exclude certain investments based on ethical criteria (such as weapons manufacturers or gambling).

In February 2023, ASIC issued proceedings against Mercer for alleged greenwashing in relation to its superannuation investment options, claiming that investors who took up Mercer’s “Sustainable Plus” options had investments in companies involved in industries which Mercer’s online statements had said were excluded.

Take Care With Carbon Pledges

As discussed on page 12, statistics about carbon emission reduction can be very influential for consumers, and are frequently promoted by businesses – despite the absence of any agreed yardstick for such claims. This can attract regulatory enforcement action and resulting reputational harm. In January 2023, Black Mountain Energy was fined by the ASIC for making unsubstantiated statements about a new gas project with “net zero carbon emissions” (even though it had allocated no funding to the work required to support its net zero claims, and had not carried out any modelling of the project’s likely emissions). Similarly, in 2021, New Zealand's Advertising Standards Authority (ASA) ordered a gas company to remove an advertisement which stated that its natural gas was “going zero carbon”, when such developments were found by the ASA to be “years and perhaps decades away” (and where the company’s internal plans were more modest, proposing a 1% hydrogen blend by 2030).