Greenwashing explained: What is it and how to avoid it?

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What is greenwashing and how to avoid it?

Greenwashing consists in making unsubstantiated environmental claims. Learn about definitions, examples of greenwashing, ASIC enforcement actions and how to avoid greenwashing.

What is greenwashing?

As per the Australian Competition & Consumer Commission (ACCC), greenwashing is defined as, making “a claim that represents a product, service or the business itself as better for or less harmful to the environment than it really is.’

A 2022 ACCC review of Australian corporate websites found that 57% of businesses made concerning claims about their environmental credentials.

What are examples of greenwashing in Australia?

Australia is one of the countries that is most actively engaging litigations for greenwashing concerns. Business’s need to be careful as cases happen very regularly and have big penalties.

  • In August 2024, a global professional services firm was handed a $11.3 million fine. A member that selected a sustainable investment option ended up with investments in the fossil fuel industry, alcohol and gambling. These sectors were supposed to be excluded from the sustainable investment option. The Judge highlighted the importance of implementing the proper monitoring processes to ensure ESG claims are accurate.
  • In September 2024, a global investment firm was ordered to pay a $12.9 million fine for misleading claims regarding an ethically conscious global fund they offered. The Court found that no ESG research or screening was done on 74% of the investment portfolio.

Consequences for businesses marking misleading green claims can be particularly serious and businesses should ensure their claims are appropriately justified.

How to avoid greenwashing?

The ACCC has published eight principles to help businesses ensure that any of their environmental marketing and advertising claims are clear, accurate, and do not mislead consumers.

Making environmental claims: A guide for business sets out the ACCC’s view of good practice when making environmental claims. It also details obligations under Australian Consumer Law.

ACCC guide table

ASIC has also published the information sheet 271 How to avoid greenwashing when offering or promoting sustainability-related products.

FAQs

1. What are ASIC responses to greenwashing?

ASIC has a range of enforcement actions from warning letters and infringement notices to Federal Court action. Key focus of ASIC is around misleading and deceptive conduct.

2. What are ASIC future key areas of focus?

  • Net zero claims and net zero targets in climate reporting
  • Wordings such as ‘carbon neutral’, ‘clean’, ‘eco-friendly’ and ‘green’,
  • ESG investment claims (specifically exclusions and screenings).

In any case, it is important for companies to substantiate its claims.

3. What is ESG data collection?

ESG data collection relates to the collection of a broad range of sustainability data (carbon footprint, diversity and inclusion, pollution, etc). To avoid greenwashing, companies need to ensure that they collect credible and reliable ESG data. Similar to financial reporting, the strong governance mechanism and control activities (automated controls, 4 eyes principle, etc) shall be implemented over ESG data preparation and reporting.

4. What is greenhushing?

Greenhushing consists in strategically under-reporting corporate sustainability actions despite good performance.

5. Why would a company engage in greenhushing?

While there are several possible reasons, an often cited one is that the company could become more exposed to public criticisms if its sustainability actions are judged insufficient or not well reported. To avoid that reputational risk, the company prefers to remain silent.

How can we help?

  • Internal control systems for ESG data
  • KPIs audit readiness assessment
  • Carbon report assurance
  • Human rights report assurance
  • Equal salary certification

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