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Businesses are increasingly making environmental sustainability claims when marketing their goods, services or investment products. Consumers are ever more conscious of environmental issues and are seeking to reduce the negative impact on the environment by purchasing of goods, services or by investing in products that are environmentally sustainable. Consumers rely on environmental advertising material and claims being accurate and are prepared to pay more for goods and services that are environmentally sustainable. Investors are also seeking to invest in companies or products that are sustainable.
Failure to ensure that environmental sustainability marketing claims are accurate can result in legal action being taken by regulators for false representations and misleading and deceptive conduct exposing the company and its directors to significant penalties and compensation claims.
ACCC’s court action against Glad Bags manufacturer for environmental claims
In April 2024 the Australian consumer regulator, the Australian Competition and Consumer Commission (ACCC) commenced Federal Court proceedings against Clorox Australia Pty Ltd (Clorox), the manufacturer of GLAD-branded kitchen and garbage bags, for allegedly making false and misleading environmental claims and representations about certain GLAD kitchen and garbage bags in breach of the Australian Consumer Law.
The Australian Consumer Law prohibits content – including marketing and advertising content – which is misleading or deceptive or likely to mislead or deceive or contains false representations in respect of the goods or services being advertised.[i]
In this case, Clorox’s representations included that the kitchen and garbage bags were made of recycled ‘ocean plastic’ and comprised of 50 percent ‘ocean plastic’ collected from an ocean or sea – but the ACCC alleges that this was not the case. Rather, the ACCC alleges that the GLAD kitchen and garbage bags “were instead partly made from plastic that was collected from communities in Indonesia up to 50 kilometres from a shoreline”[ii]
Contributing to the allegedly misleading impression was the use of ‘ocean plastics’ statements in the headline together with wave imagery in the GLAD bag packaging – as well as the bags themselves being coloured blue.
This action reflects the ACCC’s enforcement priorities for 2024-25[iii] – one of which is to focus on environmental claims and ensuring that these claims are accurate, substantiated and aligned with the understanding of the ordinary and reasonable consumer (see our update on the ACCC’s 2024-25 enforcement priorities HERE). It recognises that many Australian consumers, wishing to reduce negative impacts on the environment, will choose goods and services which are marketed using claims about environmental impact – and are often prepared to pay more for goods which are environmentally sustainable.
Orders being sought in this case by the ACCC include declarations, penalties, injunctions, an order to implement a compliance program, corrective notices and costs.[iv]
ASIC’s Federal Court win against Vanguard for ‘sustainable investment claims’ [v]
On 24 March 2024 the Federal Court of Australia held that, during the relevant period[vi], Vanguard Investments Australia (Vanguard) “engaged in conduct in relation to financial services that was liable to mislead the public” as to the nature, the characteristics, the suitability for their purpose or the quantity of any financial services in breach of s 12DF(1) of the Australian Securities and Investments Commission Act 2001 (ASIC Act). The Court also held that Vanguard had made false and misleading representations about investment products held by its Vanguard Ethically Conscious Global Aggregate Bond Index Fund (the Fund), which misled its investors in breach of s 12DB(1)(a) and (e) of the ASIC Act.
In this case, the Federal Court found that in a range of Vanguard’s communications and marketing materials about investments held by the Fund (including product disclosure statements, media release and on its website) Vanguard had promised its investors and potential investors “that the product would be screened to exclude bond issuers with significant business activities in certain industries, including fossil fuels, when this was not always the case”[vii]. Instead, Vanguard had only researched and screened companies (and generally only publicly listed companies) against applicable environmental, social and governance (ESG) criteria[viii] which, ASIC alleged, resulted in the Fund including issuers that violated applicable ESG criteria. Vanguard admitted most of ASIC’s allegations[ix].
The Federal Court will consider the appropriate civil penalty[x] to impose for the conduct in a further hearing listed for 1 August 2024.
Some takeaways…
Failing to comply with the Australian Consumer Law and ASIC Act may not only be “bad for business”, but may also involve significant legal consequences, reputational damage and financial risks. A business risks incurring high pecuniary penalties and compensation claims for making false or misleading representations in respect of their goods, services or investment products or for engaging in conduct that is likely to mislead or deceive the public.
The maximum penalties for breach of the Australian Consumer Law are currently:- for corporations, the greater of AU$50 million or three times the financial benefit gained (if the value of the breach can be determined) or 30% of company turnover earned during the breach period and, for individuals the maximum penalties are AU$2.5 million.
Currently, the maximum civil penalties for breach of the ASIC Act are[xi]:- for individuals, the greater of 5,000 penalty units (currently AU$1.565 million) or three times the benefit obtained and detriment avoided; and the maximum civil penalty for companies is the greater of:- 50,000 penalty units (currently AU$15.65 million) or three times the benefit obtained and detriment avoided, or 10% of annual turnover, capped at 2.5 million penalty units (currently AU$782.5 million).[xii]
Some steps that can be taken by businesses offering and supplying goods, services or investment products to consumers in Australia, to minimise the risk of contravention of the Australian Consumer Law or ASIC Act in their marketing and advertising include:
- Undertaking a comprehensive consumer law review of all business documentation to ensure they do not contain misleading or deceptive representations – including the following:
- marketing and point of sales material;
- product disclosure statements;
- supply terms and conditions;
- sales contracts;
- warranty documentation;
- packaging and sales invoices and receipts;
- all website/online material;
- Ensuring that all claims and representations (including environmental claims) made about their goods, services or investment products are accurate, properly researched and can be substantiated with appropriate evidence.[xiii]; and
- Regular management and staff training and education in relation to Australian Consumer Law and ASIC Act compliance requirements and risk management generally.
Disclaimer: This legal update is not intended to be a substitute for obtaining legal advice.
Authored by Rochina Iannella, Lawyer, Stephens Lawyers & Consultants.
© Stephens Lawyers & Consultants. 30 May 2024
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[i] Competition and Consumer Act 2010. Schedule 2- The Australian Consumer Law, section 18 and section 29
[ii] ACCC Media Release, “GLAD bags manufacturer in court for ‘50% ocean plastic’ claims”, Published 18 April 2024 ( GLAD bags manufacturer in court for ‘50% ocean plastic’ claims | ACCC )
[iii] To read Stephens Lawyers & Consultants’ Legal Update on the “ACCC’s Compliance and Enforcement Priorities for 2024/25” see ACCC: Compliance and Enforcement Priorities for 2024/25 – Legal Update – Stephens Lawyers & Consultants
[iv] ACCC Media Release, “GLAD bags manufacturer in court for ‘50% ocean plastic’ claims”, Published 18 April 2024 – Op Cit.
[v] Australian Securities and Investments Commission v Vanguard Investments Australia Ltd [2024] FCA 308
[vi] Ibid. at Par. 1 – which defines the Relevant Period as being “between approximately 7 August 2018 and approximately 17 February 2021”
[vii] Australian Securities and Investments Commission, Media Release, “ASIC wins first greenwashing civil penalty action against Vanguard”, 28 March 2024 per ASIC Deputy Chair Sarah Court ; 24-061MR ASIC wins first greenwashing civil penalty action against Vanguard | ASIC
[viii] Australian Securities and Investments Commission v Vanguard Investments Australia Ltd [2024] FCA 308 at Par. 3(a)
[ix] Ibid. at Par. 24
[x] Declarations and penalties to be determined under s 12GBA and s 12GB of the ASIC Act.
[xi] Declarations and penalties are determined under s 12GBA and s 12GB of the ASIC Act.
[xii] ASIC website https://asic.gov.au/: Fines and penalties | ASIC – Accessed 30 May 2024
[xiii] ACCC, “Making environmental claims: A guide for business”; Published 12 December 2023; Making environmental claims: A guide for business | ACCC ; ASIC, Info Sheet 271 “How to avoid greenwashing when offering or promoting sustainability-related products”, Issued June 2022 How to avoid greenwashing when offering or promoting sustainability-related products | ASIC