The greenwashing trap: Why misleading marketing hurts consumers and businesses

Greenwashing erodes consumer trust and poses significant financial and reputational risks for businesses. So, with growing stakeholder demands for sustainability-related information, it’s essential to be aware of the practice of greenwashing, and know why and how to avoid it. Regulators have been focused on greenwashing for several years now and are insistent on transparent, verifiable information to ensure communication is trustworthy and meets the letter of the law.

What is greenwashing, and why is it a problem?

Greenwashing is the practice of portraying a company, product or service to appear more environmentally and socially friendly than it really is.

Examples of greenwashing can include stating that something is ‘environmentally friendly’ without adequate data to verify the claim, using ambiguous terms like calling a product ‘green’, or using iconography to infer or suggest third-party certification.

Customers, investors, and ‘buyers’ of all kinds make decisions based on the information organisations share about their products, services and core business. When organisations make claims that are false, or even unintentionally misleading, people and entities might make purchasing decisions they may not otherwise have made. This can have various impacts, from financial to environmental, reputational, and - ultimately - trust.

Ongoing regulatory guidance against greenwashing in Australia

Across 2022 and 2023, Australia’s regulators and governing bodies – including the Australian Competition and Consumer Commission (ACCC), Australian Prudential Regulation Authority (APRA), Australian Securities Exchange Limited (ASX), Australian Securities & Investments Commission (ASIC), and Clean Energy Regulator (CER) – stepped up their focus on greenwashing. They have collectively made multiple statements and warnings and even begun taking considerable action against organisations seen to be greenwashing.

In March 2023, the ACCC shared its initial findings from an investigation into greenwashing, conducted via an ‘internet sweep’. The sweep reviewed the websites of 247 organisations, finding some 57% made ‘concerning’ environmental claims.

Following this significant body of work in uncovering greenwashing activity and communication, the ACCC has now released an environmental messaging guide (December 2023) to “help businesses ensure any environmental marketing and advertising claims they make about their products or services are clear and accurate, and do not mislead consumers.” The guide shouldn’t be taken lightly; it helps organisations understand their obligations when making environmental claims under Australian Consumer Law.

The ACCC’s eight principles for ‘trustworthy environmental claims’ are:

Make accurate and truthful claims
Have evidence to back up your claims
Do not hide or omit important information
Explain any conditions or qualifications on your claims
Avoid broad and unqualified claims
Use clear and easy to understand language
Visual elements should not give the wrong impression
Be direct and open about your environmental sustainability transition.

Source: Making environmental claims - A guide for business (ACCC)

These eight principles are supported by a detailed explanation, along with examples or details on ‘good practice’, as well as the ACCC’s approach to enforcement and the legal framework on which it is based. The ACCC also notes that these principles can be applied to other sustainability-related claims, particularly in the social and governance spaces.

Europe introduces new greenwashing rules

Earlier this year, the European Parliament adopted a directive to “improve product labelling and ban the use of misleading environmental claims”. To ensure this, it will add several marketing tactics to its list of banned commercial practices aiming to make labelling clearer, regulate the use of sustainability labels to avoid confusion and focus on clearly communicating the expected durability and repairability of products.

How can businesses avoid making misleading environmental claims?

When considering communications relating to the environmental performance or impacts of a product, service or organisation, it’s crucial to consider:

Is the statement accurate? Can it be verified?
If the statement relates to future goals – is there a plan to achieve this?
Could the statement be considered vague, misleading, an exaggeration, or an overstatement?

While environmental drivers can be a powerful marketing tool, this should not be their only purpose. Ensuring all sustainability-related activity aligns with an organisation’s overall purpose and strategy helps to ensure authenticity and alignment with the company’s goals. Coupled with a robust sustainability reporting process and framework, organisations should be armed with the information to make substantiated claims on their environmental impacts, benefits, and improvements over time.

For more information, you can read the ACCC’s new guide, Making environmental claims: A guide for business, or ASIC’s How to avoid greenwashing when offering or promoting sustainability-related products, published in 2022.

Here to help

Our national sustainability team works with organisations on:

Carbon accounting and measuring carbon footprints
Sustainability reporting
Decarbonisation and sustainability strategies
Assurance over sustainability reports.