The global call for companies to reach the target of being net-zero in their operations (meaning that any carbon emissions are balanced by absorbing an equivalent amount from the atmosphere), and the critical need to transition from business-as-usual, have spawned an exponential growth in the number of “green” products all marketing to an audience eager to join the sustainability bandwagon. However, in this fast-growing “green” market, the disturbing trend of greenwashing has diminished consumers’ and businesses’ confidence in sustainable business practices, products, and services even if companies are actually operating in accordance with their green claims.
As António Guterres, UN Secretary-General, famously put it, “We must have zero tolerance for net-zero greenwashing.” It is, therefore, unsurprising, that there is a fast-growing body of rules governing green claims to incentivize genuine sustainability practices, improve the trustworthiness of green claims and to penalize greenwashing. While greenwashing may have started from product-level claims in the retail sector, it has now evolved into firm-level claims that impact every single sector in the world.
On the heels of publishing an article with a non-exhaustive outline of the current laws, codes, and guidelines in relation to greenwashing in the European Union and the United Kingdom, here is one that is focused exclusively on Australia and Singapore in order to give a general overview of how global businesses can navigate the current web of greenwashing rules …
Australia
Australian Consumer Law
The Australian Consumer Law (“ACL”) prohibits conduct in trade or commerce that is misleading or deceptive, and also prohibits the making false or misleading representations about goods or services in the course of trade or commerce, including misrepresentations in promoting goods and services. The law applies even if a business did not intend to mislead, or no one has suffered any loss or damage (i.e. a strict liability law).
When deciding if conduct is misleading or deceptive, or if a representation is false or misleading, ACL will ask the question whether the overall impression created would be misleading to the ordinary and reasonable consumer. Essentially, this means that any business that makes claims in relation to their business activity, goods or services must ensure that the claim is true and accurate, and not likely to give consumers the wrong impression. Accordingly, all green claims must be substantiated. A lack of evidence to substantiate the claim may be deemed to be misleading to consumers and thereby breach the ACL.
Australian Competition & Consumer Commission: Guide for Making Environmental Claims
A Guide for Making Environmental Claims was published by the Australian Competition and Consumer Commission (“ACCC”) to help business meet their obligations under the ACL in relation to making environmental claims. In summary, the guide sets out 8 principles to help businesses steer clear of ACL breaches:
(1) Environmental claims should be accurate, factually correct, and not misleading or deceptive, or likely to mislead or deceive; (2) environmental claims should be backed by evidence that is independent and scientific. Representations about future matters must have reasonable grounds; (3) important information should not be hidden or omitted as leaving out details which might contradict or qualify an environmental claim could create an incorrect impression; (4) claims should be accompanied by conditions and qualifications; (5) claims should not be overly broad without qualifiers; (6) claims and their explanations should be in plain and specific language that is clear and easy for consumers to understand; (7) visual elements should not give the wrong impression about a product’s environmental benefit; and (8) businesses should be direct and open about their sustainability transition.
Australian Association of National Advertisers: Environmental Claims Code
The Environmental Claims Code was published by the Australian Association of National Advertisers (“AANA”) and provides valuable guidance as part of the advertising self-regulatory system. The Code seeks to improve consumer confidence by ensuring that advertisers uphold rigorous standards when making environmental assertions.
The Code provides that environmental claims in advertising or marketing communication: (a) shall not be misleading or deceptive or be likely to mislead or deceive; (b) shall display any disclaimers or important limitations and qualifications prominently, in clear, plain and specific language; and (c) shall represent the attributes or extent of the environmental benefits or limitations as they relate to a particular aspect of a product or service in a manner that can be clearly understood by the consumer.
It should be noted that environmental claims must be relevant, specific, and clearly explain the significance of the claim; not overstate the claim expressly or by implication; and not imply that a product or service is more socially acceptable on the whole.
In addition, environmental claims in advertising or marketing communication: shall be able to be substantiated and verifiable. Supporting information shall include sufficient detail to allow evaluation of a claim; shall meet any applicable standards that apply to the benefit or advantage claimed; and contain testimonials shall reflect the genuine, informed, and current opinion of the person giving the testimonial.
Treasury Laws Amendment (Financial Market Infrastructure & Other Measures)
On March 27, 2024, the Treasury published the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024. Schedule 4 of this Bill introduces new climate-related financial reporting requirements for in-scope entities, leveraging the existing financial reporting regime under the Corporations Act 2001. Under this Bill, in-scope entities will need to prepare a new “sustainability report” for each financial year in addition to their financial reports.
The sustainability report for a financial year must include: the climate statement for the year; notes to the climate statement; any statements prescribed by the regulations for the year; and the directors’ declaration about the compliance of the statements with the relevant sustainability standards. And these climate statements must be prepared according to the relevant sustainability standards issued by the Australian Accounting Standards Board.
Singapore
There is no specific greenwashing law or code applicable in Singapore at the time of this article’s publication. However, a few practices and codes are worth noting …
Consumer Protection (Fair Trading) Act 2003
The Consumer Protection (Fair Trading) Act 2003 (“CPFTA”) is the sole legislation that applies to green claims and the CPFTA is aimed at protecting consumers against unfair practices generally. Section 4 of the CPFTA prescribes that it amounts to an “unfair practice” for a supplier to: do or say anything, or omit to do or say anything, which causes a consumer to be deceived or misled; make false claims; and/or take advantage of a consumer if the supplier knows or ought reasonably to know that the consumer: (i) is not in a position to protect his own interests, or (ii) is not reasonably able to understand any matter related to the transaction.
The court may order the following remedies for victims of unfair practices (s. 7(5) CPFTA): restitution of money or property, or other consideration given by the consumer; damages for loss or damage suffered as a result of the unfair practice; specific performance by the supplier; repair or replacement of parts for goods by the supplier; or variation of the contract. An aggrieved consumer also has the right to sue the supplier for unfair practices and claim up to $30,000 or such other amount as the Minister may prescribe (s. 6(6) of the CPFTA).
The CPFTA empowers the Competition and Consumer Commission of Singapore (“CCCS”) to deal with (suspected) breaches of section 4 in various ways, including investigating into the supplier (s. 19, CPFTA), requiring documents to be produced (s, 20, CPFTA), and entering premises with or without a warrant (s. 21, 22 CPFTA).
Misrepresentation Act & Common Law Doctrine of Misrepresentation
Where a consumer has been induced to enter a transaction because of a false statement of fact, such as a greenwashing claim, made by the trader and has thereby suffered a loss, the consumer may bring a claim under common law or the Misrepresentation Act (“MA”).
Under the common law doctrine of misrepresentation, damages may be awarded to victims of greenwashing claims if the claims amount to fraudulent misrepresentation or negligent misrepresentationand loss can be proved. If fraudulent misrepresentation is established, all losses flowing directly from the transaction is recoverable. In contrast, if negligent misrepresentation is established, only losses that are reasonably foreseeable are recoverable. Where a greenwashing claim was innocently made (not negligently/fraudulently), the usual common law remedy is a recission of the contract.
Alternatively, a customer may bring a claim for misrepresentation under section 2(1) of the MA. Under s. 2(1) MA, the party who made the misrepresentation is liable for the loss of the counterparty, notwithstanding that the former did not act fraudulently, unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true.
Under s. 2(2) of the MA, where misrepresentation has been made otherwise than fraudulently, the court or arbitrator may declare the contract subsisting and award damages instead of recission, if it would be equitable to do so.
Securities Futures Act 2001
The Securities and Futures Act 2001 (“SFA”) regulates the activities and institutions in the securities and derivatives industry. Section 199 of the SFA prohibits, inter alia, making false or misleading statements which are likely to (i) induce the subscription of securities, (ii) induce the sale or purchase of securities, or (iii) affect the market price of securities. A person who makes such a statement would be liable if they do not care whether the statement was true or false, or if the person knew or ought to have known that the statement was false or misleading.
Singapore Code of Advertising Practice
The Singapore Code of Advertising Practice (“SCAP”) promotes high standards of ethics in advertising. Although the SCAP does not have the force of law, non-compliant advertisers may be sanctioned by the Advertising Standards Authority of Singapore. The SCAP advocates for “truthful presentation” and states that advertisements should not mislead in any way by inaccuracy, ambiguity, exaggeration, or otherwise (Chapter II, clause 5.1).
Crucially, advertisements should not misuse research results or quotations from technical and scientific publications, present statistics in a way that implies greater validity than they really have; or misuse scientific terms in a way that makes claims have any scientific basis which they do not really possess (clause 5.3 of the SCAP).
Specifically, Chapter IV, Appendix L of the SCAP provides rules specific to environmental claims:
> The basis of any claim should be explained clearly and should be qualified where necessary. Unqualified claims can mislead if they omit significant information.
> Claims such as “environmentally friendly” or “wholly biodegradable” should not be used without qualification unless advertisers can provide convincing evidence that their product will cause no environmental damage. Qualified claims and comparisons such as “greener” or “friendly” may be acceptable if advertisers can substantiate that their product provides an overall improvement in environmental terms either against their competitors’ or their own previous products.
> Where there is significant division of scientific opinion or where evidence is inconclusive this should be reflected in any statements made in the advertisements. Advertisers should not suggest that their claims command universal acceptance if it is not the case.
> If a product has never had a demonstrably adverse effect on the environment, advertisers should not imply that the formulation has been changed to make it safe. It is legitimate however, to make claims about a product whose composition has been changed or has always been designed in a way that omits chemicals known to cause damage to the environment.
> The use of extravagant language should be avoided, as should bogus and confusing scientific terms. If it is necessary to use a scientific expression, its meaning should be clear.
SGX Guidelines
SGX has published 27 core metrics relating to environmental, social and governance (“ESG”) factors to provide guidance for issuers in providing ESG information, and investors in assessing ESG claims. Essentially, the core metrics set out the parameters for a common and standardized set of ESG metrics, creating better alignment between users and reporters of ESG information. These ESG metrics are quantitative in nature, applicable to most sectors and grounded in the present reporting landscape.
While these metrics do not deal strictly with greenwashing, the SGX has implemented climate reporting requirements in a phased approach. This gives credence to the need to be transparent in setting ESG goals, and in reporting on the degree to which these aims are met. We believe that such requirements will go a long way to inculcate accountability and help combat greenwashing by issuers and global asset managers.
Upcoming CCCS Guidelines
On February 5, 2024, it was queried in the Singapore Parliament as to the steps which CCCS will be taking to provide companies with clear guidelines on how to market their products so as to avoid unintentional greenwashing and unfair practices. In response, the Minister of Trade and Industry affirmed that the CCCS is in the midst of developing a set of guidelines to help companies make fair and accurate claims about the environmental attributes of their products. These guidelines are aimed at steering companies away from unintentional greenwashing that may constitute unfair practices under the Consumer Protection (Fair Trading) Act.
The CCCS guidelines being developed are likely going to help combat the greenwashing problems identified in a study commissioned by the CCCS, including the use of vague and exaggerated environmental claims; the use of technical and therefore confusing and misleading jargon; the emphasis of mandatory or standard product features which are not meaningful; referrals to non-genuine environmental certifications or mischaracterizing the type of certification obtained; and the use of misleading branding and imagery.
What Companies Can Do
In a nutshell, the impending and already-enacted laws and guidelines that center on greenwashing are aimed at addressing unsubstantiated, misleading, and exaggerated “sustainability” claims; unsubstantiated, misleading, and exaggerated claims about future targets; unsubstantiated, misleading, and exaggerated comparative claims; and the use of unaccredited “green” labels. To address these problems, regulations have been – or will be – formulated to prohibit the use of generic, unqualified, and unsubstantiated green claims, to limit the permissible use of comparative claims and claims about future targets, and to regulate the use of green labels and green label schemes.
While there is no substitute for genuine conscionability and accountability in adopting and carrying out a sustainable business and marketing/selling genuinely “green” products or services, regulation is likely to prove a meaningful step in the right direction. At the same time, if business communities can sensibly strategize, measure, verify, report, and continue to track and improve, we think that the specter of greenwashing claims will diminish.
Sandra Seah is a corporate lawyer at Bird & Bird. She has extensive experience in local and cross-border mergers and acquisitions, joint ventures and collaborations, and other general corporate matters.
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