Sales & Marketing

19 Mar 2009

'Greenwashing' or 'Wishwashing': A look into the proposed guidelines for carbon claims

Hard on the heels of the Commerce Commission's (Commission) 'Green Marketing' guidelines issued in December last year, the Commission recently released draft guidelines (Guidelines) surrounding carbon offset and neutrality claims. The Guidelines  are based on an Australian model and will affect all in business who supply, distribute, sell or market a product or service and who make any claims as to a product or services' carbon neutrality, carbon offset, or footprint. This FYI will look at the proposed form of those Guidelines, how they stand to affect your business, and provide an opportunity for us to assist you in having your say.

Green the new black

'Carbon neutral' has become a marketers' catchphrase. Just as more and more businesses claim their products or events are 'carbon neutral' or offer consumers ways to neutralise their carbon footprint, so too do opportunities arise for consumers to be misled or deceived. The Commission has developed the Guidelines to ensure that anyone making such claims is fulfilling their obligations under the Fair Trading Act 1986 (Act).

The Law

The Act prohibits conduct that is either misleading, deceptive or is likely to mislead or deceive and/or is a false or misleading representation. It does not matter whether consumers were actually misled, or that a business did not intend to mislead or deceive consumers. The Act also prohibits false or misleading representations that a product is of a certain standard, grade, composition, or has any sponsorship, approval, endorsement, performance characteristics or benefits that it does not have. If there is a real, or not remote, possibility that consumers may have been misled then the Commission will take an active interest.

The Guidelines

The essence of the Guidelines is that those making claims must claim, explain and sustain. The Commission acknowledges that there is no universally recognised or accepted definition of 'carbon neutral' or 'low carbon'. Couple this with the debate that surrounds the methodology used to assess and measure such claims and the Commission considers that there is real potential for consumers to be misled and/or confused. Despite this, the Commission will expect anyone making such claims to comply with the Act. As with any claim considered in light of the Act, the key to successfully responding to an investigation by the Commission will be the ability to substantiate those claims. Listed below are some of the potential pitfalls that you should consider.

Carbon claims

• Should clearly inform consumers as to the precise nature of what is being offset and how it is being offset.
• Must be truthful, accurate and able to be appropriately substantiated. The areas most likely to be affected by carbon claims are:
  • Sponsorship
    • Do not give the impression of the backing of another party when this is not the case.
  • Approval
    • Do not claim to have approval from an external agency or board when approval has either lapsed, not been obtained, or where it relates to other matters.
  • Performance characteristics
    • Do not falsify the performance or impact of a product or service of any offset programme.
  • Benefits
    • Do not claim carbon-related environmental benefits if such claims cannot be substantiated.
  • Aspirational Goals
    • Claims such as 'going carbon neutral by 2030' should not be made unless you have reasonable grounds for making them.
    • Provided it is true, and that you are able to substantiate the reasonable basis for your claim, a suggested alternate is to claim that you aim to be carbon neutral by…
• Silence
  • Is not always golden. If you claim that you are sequestering carbon through tree planting, but fail to disclose that those trees will not be planted until some time in the future, then the consumer could be misled, and the Act breached. Instead, make it clear in any claim exactly when the carbon will be offset.

Carbon offset claims

• Carbon neutral
  • Really? Despite the fact that New Zealand has no mandated standards for such a claim the Guidelines refer to the various 'recognised standards', whilst failing to tell us what they are. The Commission's answer is to consider such claims in light of the Act.
    • As we see it, the problem with this approach is that the Commission is taking it into their hands to be the overseer of unspecified standards. We would recommend that you thoroughly investigate and take advice on which standards are recognised and considered to be best practice.
• Purchasing offsets
  • Anyone purchasing 'inappropriate or poor quality offsets' may not be able to substantiate their claims and risk breaching the Act.
    • This is a potential minefield for anyone purchasing offsets. You could be held accountable for offsets purchased from third parties.
    • We recommend that you ensure that any offset provider fully discloses any risks in the offsets they are providing and how those risks will be managed.
    • Risks the Commission has warned against include destruction of forest by fire, or bugs. This has perhaps been brought home more recently with the devastating fires in Victoria. How you safeguard against such an eventually could prove crucial to a defence under the Act.
• Additionality
  • Any benefits of carbon offset or reduction must be in addition to what would have happened in the course of business anyway. For example if it has come about as the result of a routine equipment upgrade, or because of regulatory requirements, then you cannot make such a claim.
• Timing and forward-credited offsets
  • Forward credit offsets are when the buyer pays and has the offsets credited upfront, notwithstanding that the offsets will be produced at a later stage. Forward crediting runs the risk that the claimed credits do not eventuate. The Commission suggests that the offset provider must arrange replacement credits if the product doesn't deliver anticipated emissions reductions.
  • As with any contracted service for future performance, performance is only as good as the performer - and any offset buyer should look for offset providers that fully disclose the risks together with how such risks will be managed.
• Double-counted offsets
  • 'Double counting' occurs when an offset is not 'retired' and the same emissions reductions are claimed by two or more entities. Buying a carbon offset is purchasing an environmental outcome - and if the outcome does not occur, then the purchaser has been misled.
  • To ensure that your emissions are offset, thereby substantiating claims the Commission suggests that you ensure the offsets are retired at point of sale. Again the terms of your contract will prove vital - as will the standing of the party you are contracting with.

Non-exhaustive

This FYI is not intended to be exhaustive and the Guidelines cover a range of other issues including the scopes of claims, for example direct emissions, indirect energy emissions and other indirect emissions, and, the need to consider including those scopes with any claim of carbon neutrality.

Have your say

Ensure that the Guidelines are workable for you and your business. Make sure that the lack of certainty in the Guidelines does not hinder your success in the marketplace. Take advantage of our expertise and have us help you consider the Guidelines in light of your carbon claims and also assist you with drafting submissions. Note you only have until Friday 3 April 2009. Alternatively, feedback can be sent directly to

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Next steps

Don't give the Commission cause to 'vigorously pursue' you or your business. Don't risk over-promising and under-delivering and fines of up to $200,000. Don't tarnish the good name of your business. DO seek legal advice - not just at the end when you are making a claim, but throughout the process. Ensure that everyone in your supply, distribution, sales and marketing chain is able to comply with the Guidelines and that you have adequate assurances and risk management in place.

Authors

Peter Stubbs

Partner - Corporate & Commercial

DDI: +64 9 977 5010

Mobile: +64 21 955 230

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Gwendoline Keel

Senior Associate - Corporate & Commercial

DDI: +64 9 977 5201

Mobile: +64 21 242 6639

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Craig Nelson

Senior Associate - Corporate & Commercial

DDI: +64 9 977 5185

Mobile: +64 21 918 309

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