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HG Alert: Avoiding misleading and deceptive conduct in green marketing - 8 Oct 2009

It’s an advantage these days to be seen as ‘green’. Companies are desperate to capture the new green consumer market, and as a result, we are seeing a dramatic increase in the number of carbon neutral and carbon offset claims being made by businesses, and in some cases, by unscrupulous traders looking to ‘greenwash’ their advertising to attract consumers.

As companies scramble to promote their green credentials, a number of high profile companies, both internationally and in Australia, have fallen foul of the consumer protection provisions of the Trade Practices Act 1974 (Cth).

Background

The newly adopted Carbon Pollution Reduction Scheme is designed to reduce Australia’s greenhouse gas emissions by placing a cap on the amount of carbon pollution that industries can emit. The Scheme requires affected businesses and industries to purchase a permit for each tonne of carbon they emit into the atmosphere.

This Scheme will significantly affect Australia’s economy, its rich and varied sources of industry and the environment. It is important to also note the impact the Scheme will have on the way companies market themselves to consumers, in areas as diverse as their products and services, signage, advertising, labelling, packaging, claims about third party endorsements and green certifications for the office buildings in which they conduct their business. This article discusses some of the key challenges facing companies engaging in green marketing.

Misleading and deceptive environmental claims

As we become increasingly aware of the need to be environmentally-friendly, we’re seeing a rise in the number of carbon neutral and carbon offset claims being made by businesses. However, as more businesses set out to demonstrate their green credentials, consumers are finding it difficult to assess the truth of these claims. The burgeoning carbon offset market has come under fire for “vague, misleading and unsubstantiated” carbon claims. Claims about carbon neutrality, low carbon products and carbon offsets are not universally understood, are largely unregulated, and can be easily mislead or deceive consumers.

Carbon offsets are any type of environmentally-positive credit obtained through projects which reduce emissions. Examples of carbon offsets include planting trees, distributing compact fluorescent light bulbs, and other energy-efficient projects used to generate credits which consumers can purchase to offset their own emissions.

The term ‘carbon neutral’ is used widely by businesses looking to be seen as environmentally-conscious. However, there is no universal definition of what it means to be ‘carbon neutral’.

The law

Businesses have an obligation not to engage in any conduct in business that is likely to mislead or deceive consumers. Section 52 of the Trade Practices Act prohibits misleading or deceptive conduct – that is, conduct in trade or commerce which is misleading and deceptive, or is likely to mislead or deceive. The Act also prohibits making false or misleading representations about specific aspects of goods and services.

The maximum penalty under the Act for companies engaging in misleading and deceptive conduct is $1.2 million. Additionally, if the Court finds an individual to have aided, abetted, counselled or procured a company to breach the misleading and deceptive conduct provisions, or has been ‘knowingly concerned’ in that breach, that person will also be subject to penalties imposed by the Act.

Greenwashing in Australia

The Australian Competition and Consumer Commission has recently weighed into the debate, releasing a guidance paper entitled “Carbon claims and the Trade Practices Act”. This paper sets out concise and useful advice on making legitimate carbon offset, carbon neutral and low carbon claims without being misleading or deceptive. This follows a number of recent cases where companies, mostly car manufacturers, fell foul of the Act in their attempts to promote their green credentials.

In 2008, the ACCC investigated V8 Supercars Australia Pty Ltd after it announced it would plant 10,000 native trees to offset the carbon emissions produced by its V8 supercars. This was found to be misleading and deceptive on the basis that the announcement implied that the trees would automatically offset carbon emissions, whereas in reality, planting trees does not substantially reduce carbon emissions until the trees are fully grown.

The Australian Association of National Advertisers has also sought to establish a clear framework for the sorts of environmental claims that companies can and cannot make to consumers, with the introduction and adoption of the Environmental Claims in Advertising and Marketing Code last month. The objects of this Code are to ensure that advertisers and marketers develop and maintain rigorous standards when making environmental claims, and to increase consumer confidence to the benefit of the environment, consumers and industry.

The Code sets out three key principles for environmental claims, which are supported by the Australian Association of National Advertisers. These principles state that claims should be:

  1. truthful and factual;
  2. relevant to the product or service and its actual environmental impact; and
  3. substantiated and verifiable.

The Advertising Standards Board will consider complaints under the Code as of 1 January 2010.

Greenwashing overseas

The increase in aggressive green marketing campaigns is also a prominent consumer protection issue internationally. Earlier this month, the Advertising Standards Authority of Ireland ordered Irish electricity company Airtricity to stop using the headline “Switch to green electricity and save 13 percent”. Airtricity was subject to this unwelcome attention following attempts to lure consumers away from one of its competitors in the residential electricity supply market, Bord Gais, by stating that the electricity Airtricity provided was five times more environmentally-friendly than that provided by Bord Gais. In reality, not all of Airtricity’s electricity supply originated from renewable sources. Bord Gais’ complaint that Airtricity’s advertising was misleading to consumers was upheld by the Advertising Standards Authority on the basis that the 13 percent saving applied to the total cost of their electricity bill, rather than the renewable energy supply in isolation.

Luxury car manufacturer Mercedes Benz has also come under the spotlight of the Advertising Standards Authority in London. Mercedes Benz advertised that its new E-class saloon vehicle series had CO2 emissions of 139 g/km. However, this figure was only recorded for a small number of vehicles, as CO2 emissions levels are subject to a number of vehicle specification variations. As such, the Advertising Standards Authority in London found this to be misleading and ordered the advertisements to be banned.

Green marketing tips

  • Think about your target audience. Consider the message that your target audience will take away from your advertising. It is the consumer’s impression of the conduct that is important, not your intentions. Even if your intentions are good, you may still breach the Trade Practices Act.
  • Paint the whole picture. Provide accurate and complete information upon which consumers can base their purchasing decisions. Silence can be considered to be misleading conduct.
  • Accuracy is the key. When making green claims, be sure to set out exactly what is included in your claim so to avoid misleading consumers. Be mindful that consumers’ understanding of environmental terms may vary considerably.
  • Avoid puffery and outlandish statements. There can be a certain amount of puffery and exaggeration in any advertising campaign, but if you’re making statements as to the future, ensure that you have a reasonable basis for doing so.
  • Ensure transparency. Be honest with your consumers that you, like many other companies, have not become green overnight, and that you are still trying to understand the Scheme and what it means for your business.

For more information on deceptive and misleading conduct in green marketing or the Trade Practices Act, please contact HopgoodGanim’s Competition and Trade Practices team.