Sustainability : Greenwashing - a challenge for business to manage

New Zealand Management, Sep 1, 2008 by Bryan Gundersen

The Commerce Commission (the 'Commission') has recently signalled that businesses making inflated, inaccurate or unsubstantiated 'green' claims about their goods and services will run a high risk of being investigated for breaching the Fair Trading Act (FTA). More and more businesses are hoping to capitalise on consumer awareness of the environment, with this reaching unprecedented levels. The Commission has become concerned that consumers are vulnerable to being misled by false and deceptive claims, in addition to some businesses gaining an unfair market advantage over others due to inaccurate greenwashing claims.

What is greenwashing?

Greenwashing refers to the act of misleading consumers regarding the environmental practices of a company or the environmental benefits of a product or service. Generally speaking, a claim such as 'certified carbon neutral' is acceptable if it can be shown that the claim is accurate and can be verified by an organisation with wide industry or governmental backing. Claims such as 'environmentally friendly' or 'eco-safe' are considered to be too broad, vague and cannot be backed up with scientific evidence - therefore they are likely to be 'greenwashing' and best avoided. The deputy chair of the Australian equivalent of the Commerce Commission, the Australian Competition and Consumer Commission (the ACCC) summed it up by saying "if you cannot back a claim up with verified scientific evidence, don't make it".

A recent example of a business being caught out by the Commission for greenwashing, is Wellington Combined Taxis. This company claimed on its website that it was "New Zealand's first certified carbon neutral taxi company". The company also made claims as to the fuel efficiency of its fleet and claimed its LPG cars "reduce CO2 emissions by up to 25 percent". After investigating these claims, the Commission stated that Combined Taxis had breached the FTA due to the information being misleading and because it could not substantiate its fuel efficiency and emission claims. In light of this case the Commission announced that it would be making 'greenwashing' a new area of focus.

Adrian Sparrow, the director of Fair Trading, issued the following warning: "All those in business making such claims should take a good hard look at how they might justify those claims, as the Commission will be monitoring the issue closely."

The Commerce Commission

As noted on its website, the Commission "enforces legislation that promotes competition in New Zealand markets and prohibits misleading and deceptive conduct by traders". It is common for the Commission to have 'focus areas' - areas or sectors of the market that are closely scrutinised. In the past, claims of being "GE Free" and "organic" have been subject to this increased scrutiny, largely because it is difficult for consumers in this situation to check the accuracy of the claims themselves. They are therefore entirely dependent on the honesty of the trader. For this reason, the Commission takes extra care in ensuring these claims are accurate, and will readily take businesses to court if they believe their conduct has misled consumers.

So how can businesses avoid becoming the subject of an investigation by the Commission? The ACCC has moved more rapidly in this space than our own Commission, and it is likely any guidelines developed in Australia will heavily influence any future New Zealand guidelines. The ACCC released a document in February of this year titled 'Green Marketing and the Trade Practices Act' (the equivalent to our FTA). The purpose of this document is to educate businesses about making green claims with the goal of lowering complaints by consumers and competitors. The document includes principles which require that claims:

*-- be honest and truthful, detailing the specific part of the product or process it relates to;

*-- use language which the average member of the public can understand;

*-- be substantiated; and

*-- consider the whole lifecycle of the product.

It also makes it clear that unqualified claims, such as 'green' or 'eco friendly', should be used with caution.

Breaching the FTA can result in stiff financial penalties; up to $60,000 for an individual and up to $200,000 for a company for each offence. There are also other commercial risks involved, such as damage to the goodwill of the business from adverse publicity from an investigation or prosecution. This cost to a business is often greater than any pecuniary penalty imposed under the FTA. For these reasons, businesses need to be vigilant about how they market the green credentials of their goods and services.

Conclusion

Recently the Commission has signalled that it will be ramping-up its scrutiny on businesses utilising green claims, and any resulting investigation has the potential of being very expensive for the business concerned. However, by ensuring your claim does not breach the FTA and adhering closely to the guidelines offered by the ACCC, businesses will be able to manage these risks.