Global Trends in Regulating Environmental Claims

We know that sustainability and the drive to net zero emissions is an important issue for our members, with many companies implementing robust and ambitious environmental,
social and governance (ESG) strategies.

While businesses may be taking real steps towards sustainability, customers are increasingly suspicious of greenwashing. Recent research by SEC Newgate showed that 91% of Australians either don’t trust what companies claim about their ESG performance or are unsure.

As we saw at the last Federal election, the call for urgent climate action is deafening. This is having a flow on effect with politicians and regulators around the world taking action to stop greenwashing, introduce standardised measurements of environmental impact and force brands to consider product lifecycle when making environmental claims.

With the AANA’s Environmental Claims Code due for public review later this year, let’s have a look at the various goings on around the world when it comes to regulating environmental claims. The developments tend to fall into four pots:

• Private litigants taking action;
• Regulators explicitly defining what types of environmental claims are banned;
• Requiring standardised measures and independent verification of environmental benefits; and
• Requiring companies to consider product lifecycle when measuring environmental impact.

The ACCC has already announced that environmental claims and sustainability will be a priority enforcement area this financial year. Its case against Volkswagen back in 2019 resulted in record penalties of $125m and that was under the old, much lower penalty regime of $1.1m per breach. There is now a new penalty regime of $10m per breach, three times the profit obtained or 10 per cent of annual turnover in the preceding 12 months, whichever is greater.

And even if the ACCC does not take action, we are seeing a rise in cases brought by parties such as the Environmental Defenders Office here in Australia. The EDO has launched proceedings in the Federal Court against oil and gas giant Santos, challenging the accuracy of its claim that natural gas is “clean fuel” and alleging that Santos does not have a credible pathway to achieve net-zero emissions by 2040, as claimed by the company. The case is due to be heard later this year.

Likewise in the UK, environmental charity ClientEarth lodged a complaint against BP alleging that its “Keep Advancing” and “Possibilities Everywhere” ad campaign gave a false impression of the relative scale of BP’s renewable and low carbon activities. Before the matter could be assessed, BP announced that it was not only scrapping the ad campaign but it was also scrapping any further spending on global reputation advertising campaigns, opting to redirect resources to promote climate policies.

But beyond enforcement of the existing laws and regulations, we are seeing a global push to tighten rules around environmental and sustainability claims which are likely to make their way here to Australia:

• In the EU, the European Commission (EC) is proposing the adoption of standardised methods for measuring the environmental footprint of a product or organisation as well as the life cycle of a product. The EC has made it clear that they intend these voluntary tools to be used by companies to substantiate any green claims they make and is encouraging industry associations to promote the use of these standardised methods.
• Again in the EU, the European Commission has proposed a ban on generic environmental claims unless such claims can be substantiated through recognised eco labelling schemes.
• At a global level, following COP26, international accounting standards are being developed to set a baseline for sustainability disclosures. ASIC is keeping a close eye on these developing standards and, if and when they are introduced to Australia, such disclosures will represent another piece of information for consumers and potential litigants to verify whether a company’s environmental claims stack up. The US Securities and Exchange Commission has already released a draft ruling requiring all US listed companies to disclose climate risk and emissions and these changes, if adopted, will take effect in 2023.

With all these global developments, one may ask why we still need the AANA Environmental Claims Code? Firstly, the ACCC can only take action in certain circumstances and focuses on large advertising campaigns where consumer detriment is widespread. Whereas it only takes one complaint and one ad to generate a review by the Ad Standards Community Panel. Secondly, the speed at which the self-regulatory process works means that offending ads are amended or taken down in a matter of weeks, thereby minimising the damage done by false environmental claims. Thirdly, the AANA Environmental Claims Code represents a commitment by the advertising industry to uphold minimum standards that reflect the community’s desire for real action on climate change and loathing of greenwashing.

The review of the AANA Environmental Claims Code will kick off later this year. If you would like to be involved in the review or learn more about our policy and regulatory affairs work, reach out to Megan McEwin, our Director of Policy and Regulatory Affairs via this link.