Julika Wahlmann-Smith, Senior Associate and Janou Kannangara, Solicitor at Hesketh Henry, question whether your environmental claim is sustainable or not by looking at the promotion of environmental benefits in connection with products and services.
Consumers are becoming increasingly mindful of environmental considerations when purchasing products or services. Accordingly, businesses have recognised the value of promoting their products and services as good for the environment or less harmful to the environment than their alternatives. When a business makes a representation about the environmental impact of the production, distribution, use and disposal of a product or service, this is known as making an “environmental claim”.
We have seen an increased regulatory focus in New Zealand around the making of environmental claims. The Commerce Commission has recently published guidance in this area. The Government has also introduced an Organic Products Bill which proposes to regulate “organic claims” (a type of environmental claim) made by businesses.
Environmental claims and their regulation
Environmental claims can be made in a number of different forms and can be expressly stated in advertising or other materials or can be implied. For example, a brand name, logo or imagery on product packaging can create the overall impression that the product has environmental benefits.
Businesses that make environmental claims in connection with products or services must comply with the Fair Trading Act 1986. The Fair Trading Act prohibits persons from making false, misleading or unsubstantiated representations about goods or services in trade. Breach of one of these prohibitions can result in fines of up to NZ$600,000 for companies and NZ$200,000 for individuals and can cause significant damage to a businesses’ reputation.
Effectively, businesses must be able to demonstrate reasonable grounds for making an environmental claim. The Advertising Standards Authority’s Advertising Standards Code contains a similar requirement that environmental claims in advertisements be substantiated by evidence that reflects scientific and technological developments at the time the claim is made.
With the introduction of the Organic Products Bill, which is currently at the Parliamentary Select Committee stage, businesses that make certain types of environmental claims known as “organic claims” may soon be required to meet national organic production standards and follow processes set by legislation before an organic claim can be made.
Practical guidance on making environmental claims
The Commerce Commission guidance emphasises the importance of clearly identifying the specific part of a product or the production process that an environmental claim relates to, for example, whether it relates to extraction, transportation, manufacture, use, packaging, or disposal. The Commission considers that there is an inherent risk of misleading customers where an environmental claim is made in general terms such that the claim relates to the whole product (or its lifecycle). This is because only one feature of the product may have the environmental benefit while other characteristics of the product may not.
The Commerce Commission guidance also highlights some specific considerations in relation to some common types of environmental claims:
- Composition claims such as claims that a product, “contains no harmful chemicals” is “plant based” or “contains recycled content” should clearly explain whether the claim relates to the entire product or only part of (for example, the packaging);
- Organic claims – when making an organic claim, consideration must be given to both the source of the raw ingredients and production process. A product must not be marketed so as to mislead customers that the product contains organic ingredients;
- Free-of claims – claims that a product is “free-of” a certain ingredient may be misleading where the product includes ingredient substitutes that may be just as harmful as the omitted ingredient or the omitted ingredient is not commonly used in comparable goods;
- Renewable energy claims – the energy cost, energy supply and benefits of the renewable energy source should be made clear to customers;
- Biodegradable claims – the rate and amount the product or packaging will biodegrade in environments where it is commonly disposed should be clearly explained;
- Compostable claims – compostable claims should clearly display the correct method of composting the product or packaging, for example, at a commercial composting facility or at home. Limitations to the accessibility or availability of composting facilities should be clearly stated;
- Recyclable claims – items that are not widely accepted at kerbside recycling or council drop offs should specify where they can be recycled.
If you would like further information in relation to your obligations when making environmental claims in relation to goods or services you supply, please get in touch with Julika Wahlmann-Smith and Janou Kannangara of Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.
Julika Wahlmann-Smith has advised on a wide range of corporate and commercial law issues, including reviewing and advising on commercial contracts, terms of trade and distribution agreements, mergers and acquisitions, foreign investment, advertising campaigns, consumer law, and intellectual property rights. Connect with Julika via email or LinkedIn
Janou Kannangara graduated from the University of Auckland with an LLB (Hons) degree, and spent her final semester attending Georgetown Law’s Center for Transnational Legal Studies in London. Connect with Janou via email or LinkedIn