New Zealand: Avoid Greenwashing, Social Washing, and AI Washing

Environmental, social, and governance (ESG) washing penalties, including those related to “greenwashing” and “social washing,” continue to pose one of the greatest risks to private entities arising from ESG-related obligations in New Zealand. Being added to this growing laundry list of washing is an emerging risk around “AI washing.” “Washing” occurs when organizations make misleading claims about their goods, services, or organizational practices to appeal to consumers, investors, or workers.

Risks include, for example, overstating their sustainability-related credentials (“greenwashing”), their social responsibility (“social washing”), or the use and/or capability of artificial intelligence in their goods or services (“AI washing”). While the law behind ESG and AI washing in New Zealand is essentially governed by the concept of misleading and deceptive conduct in the Fair Trading Act 1986 and the fair dealing provisions of the Financial Markets Conduct Act 2013, the application of that law is far from simple. Washing can be international or inadvertent in that an organization can make a statement about its ESG or AI credentials that, on its face, is true but could be considered misleading and deceptive if it causes a misleading impression overall.

While ESG washing has existed for some years, it, along with AI washing, is becoming more frequent and significant in the context of both increasing global regulation requiring mandatory disclosure and the importance placed by consumers on these representations in making purchasing decisions. In addition to penalties arising from legal/regulatory action, other risks for organizations include loss of reputation, loss of stakeholder trust and goodwill, and employee brand damage.

AI Washing

Is your product or service less intelligent than you claim? In a nutshell, AI washing is the practice of misstating your organization’s or your product’s AI capabilities for the purpose of gaining a competitive advantage or improving your organization’s reputation. 

These misstatements can be in the form of how an organization describes the use of AI, the efficacy of AI over existing techniques, the flexibility of AI, or the extent to which AI is fully operational. In turn, these misstatements can create problems for consumers by offering goods or services that do not meet expectations, causing overpayment for goods or services, and making it hard for consumers to identify whether they have received the promised good or service. More broadly, this type of conduct can erode consumer trust in AI and AI-related goods or services.

What makes AI washing different from other forms of ESG washing is that some of the features that make AI beneficial can also amplify the risks of misleading statements. AI systems can change their performance over time and adapt by learning from data, but if that data contains inaccuracies, that can result in unwanted bias and misleading or entirely erroneous outputs known as “hallucinations.” 

This risk is amplified further with AI systems that are designed to make decisions independently, without human intervention at any stage of the decision-making process. Therefore, the AI product or service can evolve, meaning that representations made at the time of sale may no longer be true.

Prudent organizations should ensure that any statements they make about the use of AI in their goods or services and the capabilities of that AI are factually accurate to reduce the risk of being accused of AI washing.

Greenwashing

Greenwashing claims continue to grow both domestically and internationally. 

In Australia, both the Australian Competition and Consumer Commission (ACCC) and Australian Securities and Investment Commission (ASIC) have continued to focus on ESG washing as top enforcement priorities. 

In its 2024-25 Compliance and Enforcement Policy and Priorities, the ACCC identified consumer, product safety, fair trading, and competition concerns in relation to environmental claims and sustainability as one of its 10 compliance and enforcement priorities for this year. 

On a related note, at the end of last year, the ACCC released its final guide on sustainability collaborations and Australian competition law. The guide is designed to help businesses understand the competition law risks that may arise when contemplating working together to achieve positive sustainability outcomes.

Meanwhile, ASIC has had good enforcement success in the past 12 months pursuing greenwashing cases. This focus has been renewed in its priorities for 2025, with ASIC suggesting that its 2025 greenwashing focus will be broadened to include listed entities, managed funds, and superannuation funds. 

Social Washing

Similar to greenwashing, social washing occurs when organizations make misleading claims about their goods, services, or organizational practices in relation to social issues. Social washing often occurs in the context of statements made about an organization’s supply chain and the asserted absence of human rights abuses, forced labor, modern slavery, child labor, or impact on the communities in which their supplies operate.

Jane Standage, Olivia de Pont, Gillian Service, Nick Frith, Sean Gollin, June Hardacre, Andrew Horne, and Aaron Lloyd are attorneys with MinterEllisonRuddWatts in Auckland, New Zealand. Richard Gordon, Briony Davies, Megan Richards, and Stacey Shortall are attorneys with MinterEllisonRuddWatts in Wellington, New Zealand. © 2025 MinterEllisonRuddWatts. All rights reserved. Reposted with permission of Lexology.