Environmental, social and governance standards, commonly known as ESG, have become an important part of modern business. Consumers, investors and regulators are paying closer attention to sustainability, carbon reduction, ethical sourcing and environmental responsibility.
As a result, many companies now promote their products, services or investments as “green,” “sustainable,” “carbon neutral,” “eco-friendly” or “environmentally responsible.”
However, these claims can create serious legal risk if they are exaggerated, unclear, unsupported or misleading. This is commonly known as greenwashing.
Greenwashing is not only a branding or public relations issue. In Australia, it may expose businesses, directors, financial service providers and advertisers to regulatory investigation, civil penalties, compensation claims and reputational damage.
What Is Greenwashing?
Greenwashing occurs when a business creates a misleading impression about the environmental benefits, sustainability credentials or climate impact of its products, services, operations or investments.
This may happen through advertising, packaging, product labels, websites, social media, investor materials, sustainability reports, financial product disclosures or public statements.
Common examples of greenwashing include:
- using vague claims such as “eco-friendly,” “green,” “sustainable” or “carbon neutral” without explaining what those claims mean;
- highlighting one positive environmental initiative while ignoring the broader environmental impact of the business;
- using nature-based images, green packaging, leaf symbols or “100% natural” labels without proper evidence;
- claiming carbon offsets or net-zero progress without reliable data, methodology or long-term verification;
- promoting an investment product as ESG-focused while the actual portfolio does not match the sustainability claim.
These types of claims may mislead consumers or investors into making purchasing or investment decisions based on incomplete or inaccurate information.
Australian Laws That Regulate Greenwashing
In Australia, greenwashing may be regulated under several legal frameworks.
Australian Consumer Law
The Australian Consumer Law prohibits misleading or deceptive conduct in trade or commerce. If a business makes an environmental claim that is likely to mislead consumers, the business may breach the law even if it did not intend to deceive anyone.
A business should be able to substantiate any green claim with clear, accurate and reliable evidence. If a claim cannot be verified, it should not be used in marketing or product materials.
Corporations Act and ASIC Enforcement
For listed companies, managed funds, superannuation products and financial services providers, ESG claims may also raise issues under the Corporations Act 2001 (Cth).
If a company or financial product makes misleading sustainability statements, it may breach disclosure obligations or rules against misleading conduct in financial services.
The Australian Securities and Investments Commission, known as ASIC, has placed significant focus on greenwashing in financial products and investment marketing. Businesses that promote ESG-related investments must ensure that their disclosure documents, websites and investor communications accurately reflect the actual investment strategy.
Carbon and Energy Reporting Obligations
Businesses that report greenhouse gas emissions or energy use may also need to consider whether their external ESG claims are consistent with their reporting obligations.
If public sustainability claims do not align with internal data, emissions reporting or actual business practices, the inconsistency may increase regulatory and litigation risk.
ACCC and ASIC Enforcement Trends
Australian regulators have increased their scrutiny of greenwashing.
The Australian Competition and Consumer Commission, known as the ACCC, has identified environmental claims as an enforcement priority. In its greenwashing internet sweep, the ACCC reviewed environmental claims made by hundreds of businesses and found that more than half raised concerns about potentially misleading conduct.
Common issues included lack of evidence, vague sustainability language, unclear environmental benefits and claims that overstated the impact of a business’s environmental initiatives.
ASIC has also taken enforcement action in relation to ESG investment claims. Its focus includes managed funds, superannuation products and financial products that are marketed as sustainable, ethical, fossil-fuel-free or environmentally responsible.
For businesses, this means that greenwashing risk is no longer theoretical. Environmental claims are now a live compliance issue.
Legal Risks and Consequences of Greenwashing
Greenwashing can lead to several serious consequences.
Civil Penalties
If a business breaches the Australian Consumer Law or the Corporations Act, it may face significant civil penalties. For companies, penalties can be substantial, particularly where the conduct affected many consumers or investors.
Compensation Claims
Consumers, investors, shareholders or competitors may seek compensation if they suffered loss because they relied on misleading ESG claims.
For example, an investor may allege that they invested in a fund because it was promoted as environmentally responsible, when the actual investment portfolio did not match that representation.
Regulatory Investigation
The ACCC, ASIC or another regulator may investigate a business’s advertising, website, labels, packaging, disclosure documents, sustainability reports, emissions data and internal records.
A regulatory investigation can be expensive, time-consuming and damaging even before any formal penalty is imposed.
Reputational Damage
Greenwashing allegations can significantly damage public trust. Once a business is accused of misleading consumers or investors about sustainability, it may face customer backlash, investor concern, media attention, reduced sales and long-term brand harm.
Practical Examples of Greenwashing
A clothing brand may advertise a product range as “sustainable” because it uses some recycled material, but fail to disclose that only a small percentage of the product is recycled.
A food or cosmetics company may use green packaging, natural imagery and environmental slogans without having reliable evidence that the product has a lower environmental impact.
A company may claim to be “carbon neutral” because it purchases carbon offsets, but fail to explain the source, quality, scope or limitations of those offsets.
A superannuation fund or managed investment scheme may promote an option as excluding fossil fuels, while still investing in companies connected with fossil fuel extraction, production or supply chains.
A business may publish ambitious net-zero targets but have no practical implementation plan, no interim milestones and no reasonable basis for believing the target can be achieved.
Each of these examples may create legal exposure if the overall impression given to consumers or investors is misleading.
How Businesses Can Reduce Greenwashing Risk
Businesses should treat environmental claims as compliance statements, not just marketing slogans.
Before publishing any ESG or sustainability claim, a business should ask whether the claim is accurate, specific, evidence-based and capable of being verified.
Use Clear and Specific Language
Avoid vague phrases such as “green,” “eco-friendly,” “clean,” “planet positive” or “sustainable” unless the business can clearly explain what the phrase means.
A better approach is to identify the specific environmental benefit, the product or activity it applies to, the relevant time period, and any important limitations.
Keep Evidence for Every Claim
Businesses should keep records supporting their environmental claims, including emissions data, audit reports, supplier records, lifecycle assessments, certification documents, carbon offset information and internal approval records.
If a regulator asks for evidence, the business should be able to provide it quickly.
Avoid Selective Disclosure
It may be misleading to promote one positive environmental feature while omitting other facts that would change the overall impression.
For example, if a product has recyclable packaging but the product itself is produced through highly polluting processes, the marketing should not suggest that the entire product is environmentally beneficial.
Review ESG Claims Across All Channels
Greenwashing risk can arise not only in formal reports, but also in websites, brochures, social media posts, product packaging, investor presentations, advertising campaigns and sales scripts.
Businesses should ensure that marketing teams, legal teams, compliance teams and management are aligned before publishing ESG claims.
Update Claims Regularly
Environmental data, business operations, regulations and standards can change. A claim that was accurate at one time may become misleading if it is not updated.
Businesses should regularly review sustainability statements, net-zero targets, carbon claims and ESG disclosures to ensure they remain accurate.
Greenwashing Is a Legal Risk, Not Just a Marketing Issue
Greenwashing can expose a business to regulatory action, penalties, compensation claims and reputational harm.
Australian regulators have made it clear that environmental and ESG claims must be transparent, accurate and supported by reliable evidence. Businesses should not rely on broad sustainability language unless they can prove the claim and explain its basis.
In an environment where consumers and investors increasingly rely on ESG information, businesses must ensure that their public statements match their actual conduct.
Facing a Greenwashing Investigation or Misleading Conduct Allegation?
If your business is facing a greenwashing allegation, ACCC investigation, ASIC inquiry, misleading conduct complaint or ESG disclosure dispute, early legal advice is essential.
The team at Jenny Xu Lawyers can assist with reviewing environmental claims, assessing legal exposure, preparing responses to regulators, and developing a practical strategy to protect your interests.
Disclaimer: The above content is for general informational purposes only and should not be regarded as legal advice. The information provided may change over time. You should always seek professional advice before taking any action.