Greenwashing alert issued to company directors

Australian company directors should be on high alert as the competition watchdog cracks down on misleading environmental claims.

Nicole Mohan, National Sustainability Lead and Principal, Risk Advisory and ESG Services in RSM Australia’s Brisbane practice, said the absence of a mandatory global sustainability reporting framework may result in environmental and sustainability reporting practices lacking transparency and reliability.

Out of Australia’s top 250 public companies, 96% report on sustainability performance, but a recent ACCC internet sweep has raised high-level greenwashing concerns with 57% of the 247 businesses reviewed reporting concerning claims regarding environmental credentials.

According to Mohan, greenwashing impacts more than organisational reputation, and may have legal, financial and regulatory pressures and penalties.

“Most of the concerning environmental claims came from the cosmetic and personal care, textiles, garments and shoes, and food and beverage sector. However, the ACCC sweep also identified concerning claims across the energy, motor vehicle, electronics and home appliances, and household and cleaning product sectors,” Mohan said.

Misrepresentations of environmental performance include the use of vague or unclear terms, not providing sufficient evidence to back claims, setting sustainability goals without clear strategies for how the goals will be achieved and using third-party certifications and symbols in a confusing way.

Mohan recommends that businesses practise truth in promotion and clarity in communication to ensure no one is misled by environmental claims.

“It’s paramount for organisations to avoid using terms that are misleading or confusing, such as ‘green’ or ‘sustainable’ when they may not accurately reflect the product, service or its production process, and practise transparency around any limitations or qualifications to the claim, such as environmental impact in certain conditions or in different scenarios,” Mohan said.

According to Mohan, it is a misconception that greenwashing is a marketing-led initiative because environmental claims can stretch beyond marketing to the omission, misrepresentation or manipulation of sustainability information in all phases of product development.

The ACCC is expected to undertake enforcement, compliance and education activities to crack down on greenwashing.

Mohan encourages businesses to act and improve the integrity of sustainability reporting and consult a professional if they become aware they have made false or misleading claims.

The International Sustainability Standards Board published two Draft Exposure IFRS Sustainability Disclosure Standards in March 2022, which can form a global baseline of sustainability disclosures. The aim is for these standards to be finalised in June 2023.

Mohan said reporting in accordance with IFRS is not yet mandatory in Australia, but is endorsed by several Australian regulators and agencies.

“The ACCC have openly said those who are able to identify and advise of any issues with their operations will be considered more favourably, so I encourage businesses to act now to improve their sustainability reporting,” Mohan said.

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