INSIGHT

Competition and consumer law risks to be aware of in relation to ESG

Climate Change Competition law Consumer law Environment & Planning Environment, Social, Governance

As businesses continue to focus on ESG, it's important to be aware of potential competition and consumer law risks

Most significantly, these risks can involve misleading environmental claims and anti-competitive industry collaboration. 

After watching this short Video, you will have a clear understanding of:

  • both of these issues; and 
  • some of the practical steps you can take to prevent these risks.

Transcript

Robert Walker As businesses continue to focus on ESG, it's important to be aware of the competition and consumer law risks. 

Rosannah Healy Most significantly, these are the risks of misleading environmental claims and industry coordination that raise cartel conduct issues. 

Robert Walker In this video, we'll unpack these issues and set out some practical steps for mitigating those risks.

Misleading environmental claims

Rosannah Healy It's no surprise companies are continuing to make claims and public commitments about the environment and sustainable business practices, and that's because these issues are increasingly important to consumers and investors alike.

But, these kinds of environmental claims can fall foul of consumer laws, exposing you to regulatory scrutiny, to private action and to class actions. And notably this year, ASIC and the ACCC have both identified misleading sustainability claims as an area of enforcement action.

Environmental claims typically fall into one of two categories: 

One is claims about the green credentials of products and services themselves, such as 'made from recycled materials' or 'biodegradable'.

And the second, perhaps larger category, are public commitments about achieving certain sustainability initiatives by a particular timeframe. So, for example, 'net-zero by 2030' or 'we'll phase out plastics by 2025'. We are going to focus on that second category in this video of public commitments about sustainability initiatives. 

So, what do you need to do to ensure that these kinds of claims don't fall foul of the consumer laws? 

Public commitments to achieve a particular sustainability initiative within a timeframe are representations about future matters. And that means that there are strict legal requirements which apply at the time that you make those claims.

And essentially what you need to establish is that - at the time you make the claim, such as 'net-zero by 2030' - that you have reasonable grounds for making the claim. And that generally requires you to show two things. One, that you have the intention to meet that commitment, and two, that you have the ability from a practical perspective to achieve the commitment.

Now, there are no hard and fast rules about how you would demonstrate those things if a regulator or private litigant came knocking. But we generally recommend four things:

Number one, that you have clear evidence of the company's intention to fulfil the commitment. So that might be, for example, minutes of the meeting where the commitment was endorsed by the leadership team.

Number two, clear documented strategies for how you will implement the commitment in practice. So an example might be project plans or other documents which show how you will implement the commitment from a practical perspective. 

Number three, if there are particular risks or uncertainties which mean that you may not achieve that commitment, it can be a good idea to disclose those risks and uncertainties so that consumers see and interpret your commitment in light of some of those uncertainties.  

And finally, you should have ongoing monitoring in place whereby you check your progess against the commitment which has been made to ensure that it remains current and achievable. And that might be something you do internally, or something that you use an auditor for, for example.

Competition law risks associated with industry coordination

Robert Walker So in the second part of this video, we are going to discuss another regulatory risk: that is, competition law risks posed by industry collaboration around sustainability initiatives. 

Now industry collaboration is a good thing. It enables the sharing of R&D, best practice, and also to scale up for new technology. However, it's important to recognise that any industry collaboration can pose competition law issues.

So when do these risks arise?

Well, the first bucket of risks is any restriction in respect of the sale or production or manufacturing of products. So, for example, agreeing to phase out a product that's not environmentally efficient or not to use a certain input in the manufacturing process, such as a particular chemical.

The second area of risk concerns discussions in relation to price or a component of price, so that, for example, could include discussions in relation to passing a levy to consumers. 

Now, overseas there's been a lot of discussion about the importance to ensure that competition law does not act as a roadblock to sustainability initiatives – and competition authorities overseas have begun to introduce guidelines setting out the areas that can be discussed and those that should not be between competitors. We are yet to see those guidelines in Australia. However, they may come at some point. 

In the meantime, what can you do to mitigate your risks?

Well, before entering discussions with competitors, the first is to put in place an agenda that sets out the scope of the discussions. 

Second, it's always prudent to put in place a competition protocol that sets out the areas that will and won't be discussed.

Third, if areas during the meeting veer into topics that should not be discussed, it's important to be vigilant and put an end to those discussions and to make it clear that those discussions should not continue. 

Fourth, seek advice before putting any initiatives in place. And in particular, that advice should consider whether or not it's prudent to seek authorisation from the ACCC for the relevant conduct. That's a process under which the ACCC can authorise conduct that raises competition law concerns but otherwise amounts to a net public benefit. 

Finally, take a note or minutes of the discussion in relation to those industry initiatives.

As the market continues to transition to net zero, there will be more opportunity for industry collaboration. And industry collaboration is a good thing and should take place. It is, however, important to seek advice to ensure that controls are put in place to mitigate any competition law risks associated with those initiatives. 

Related videos

Three things to consider with ESG investing

What ESG diligence is and why it is relevant

Strategies you should implement to mitigate ESG disputes risk

Stay informed

Subscribe to our insights and updates