Avoiding greenwashing: a practical guide for Australian businesses

Not long ago, making a vague claim about being 'eco-friendly' or 'sustainable' was just business as usual in marketing. Not anymore. The Australian Securities and Investments Commission (ASIC) has declared war on greenwashing, and the consequences for getting it wrong have moved from a slap on the wrist to multimillion-dollar penalties.

For any Australian business making environmental or ethical claims, understanding the regulator's expectations is critical. This isn't just about protecting your brand's reputation; it's about avoiding serious legal and financial risk.

What is greenwashing, really?

Greenwashing is the practice of misrepresenting the extent to which a financial product, investment strategy, or a company's operations are environmentally friendly, sustainable, or ethical.

It's not always about telling outright lies. More often, it takes subtle forms. ASIC's guidance (INFO 271) and recent enforcement actions highlight several common types of greenwashing:

• Vague, undefined claims: Using broad, unqualified terms like 'green', 'clean', 'eco-friendly', or 'responsible' without explaining what they mean in that specific context.
• Exaggerated or absolute claims: Statements like '100% carbon neutral' or 'zero waste' that aren't technically true or rely on dubious offsetting schemes.
• Hidden trade-offs: Highlighting one positive environmental feature of a product while ignoring other, more significant negative impacts (e.g., a shirt made of organic cotton that was produced using exploited labour).
• Lack of substantiation: Making a claim without having a reasonable basis or evidence to back it up at the time the claim is made.

The regulator is watching: ASIC's recent actions

ASIC isn't just issuing guidance; it's taking action. Under the ASIC Act and the Corporations Act, making misleading or deceptive statements is illegal. In the past 18 months, we've seen a string of enforcement actions that prove the regulator means business.

High-profile cases have seen companies pay significant penalties for alleged greenwashing in their product disclosure statements and marketing materials. ASIC has targeted managed funds, superannuation funds, and energy companies, sending a clear signal that any sustainability claim made to the market must be accurate and provable. The key takeaway from these actions is that ESG claims are now being held to the same standard as financial claims.

The 'substantiation' test: Can you prove it?

This is the most important concept to understand. If you make a sustainability-related claim, you must have a 'reasonable basis' for it. This means you need credible, verifiable evidence to support what you're saying. The evidence should be compiled before you make the claim, not scrambled for after a regulator comes knocking.

For example:

• If you claim your product is 'recyclable', you need to be sure that it can be, and is, recycled in the majority of communities where it's sold.
• If you claim to be 'carbon neutral', you must be able to show your emissions calculations (including Scope 1, 2, and relevant Scope 3), your reduction efforts, and details of the specific, high-quality carbon credits you've purchased to offset the remainder.
• If you claim to use 'sustainably sourced' materials, you need a definition for that term and a documented process for verifying your suppliers against that standard.

A practical checklist to stay compliant

To avoid straying into greenwashing territory, treat your sustainability communications with the same rigour as a financial prospectus. Before publishing any claim, run it through this checklist:

• Be specific: Instead of 'eco-friendly', say 'made with 50% recycled plastic'. Instead of 'we support communities', say 'we contribute 1% of profits to Landcare Australia'.
• Explain your methodology: If you make a claim based on data, briefly explain how you calculated it or link to a more detailed explanation.
• Show, don't just tell: Use data, third-party certifications (like B Corp or Climate Active), and specific case studies to back up your narrative.
• Be honest about trade-offs: No company or product is perfect. Acknowledging challenges and areas for improvement builds credibility far more than making impossibly perfect claims.
• Ensure governance: Who signs off on ESG claims? Your legal and compliance teams should be involved in reviewing any public sustainability statements before they are released.

The bottom line

ASIC's crackdown has made one thing crystal clear: greenwashing is a serious compliance issue. The best way to avoid it is to focus on authenticity and transparency. Communicate your real, tangible efforts and be honest about how far you still have to go. In the long run, credibility is a far more valuable asset than hype.