AFR: Inform, Don't Mislead in Ethical Claims

Published in the Australian Financial Review, 9 October 2014.

Why did the chicken cross the Tweed River? To find a better definition of free range for its eggs. Yes, that’s right: a free range chicken in Queensland can share the same hectare with just 9,999 other chickens, while in NSW there is no limit to the number of chooks that can be crammed into a “free-range” space. If the chicken instead headed south across the ACT border it would need flock together with only 1,499 birds of a feather in a veritable chook nirvana. The problem is that unsuspecting consumers are paying double for eggs they believe, in many cases falsely, are from chickens roaming in wide-open spaces.

Ethical claims have become big business. Australians have every right to choose what they consider to be ethically better places for spending and investing their earnings. But because so much money can be made from being classed as ethically superior, there is a growing risk of alliances of convenience between environmental groups and corporations making misleading claims about their offerings and about their competitors.

Grocery shoppers might favour coffee grown on plantations that refrain from using child labour. Consumers concerned with animal welfare want to know whether meat is free range, factory farmed or from a nether world where they live neither in cages nor on rangelands.

In their submissions to the competition policy review, several farming organisations describe illegal entry onto properties as “agri-terrorism.” They urge removing the exemptions of environmental and animal welfare groups from the secondary boycott provisions of the competition laws. If accepted, this proposal could prevent community groups from recommending that consumers buy environmentally friendly or ethically sourced products.

The review panel has rejected any such impediment to free speech, citing as examples consumer group campaigns against tobacco, alcohol, fast foods and gambling. But it seeks comment on removing protections against legal action by the ACCC where a community group directly impedes the lawful commercial activity of others. Laws already exist against trespassing. Is filming animal cruelty an act of “agri-terrorism” or should consumers be expected to embrace the philosophy of what goes on behind barn doors stays behind barn doors?

Under the competition laws, a corporation cannot engage in false, misleading or deceptive conduct in relation to another business. However, these restraints do not apply to environmental or consumer groups. It would not be difficult to imagine a company entering into a financial arrangement with such exempt bodies to make false, misleading or deceptive claims against a business rival.

Such is the lack of transparency in product claims and alliances that consumers, too, are vulnerable to being duped.

Ethical investment decisions may be heading down the same path. In justifying a decision to divest the Australian National University’s holdings in seven fossil fuel and mining companies, Vice-Chancellor Ian Young reportedly hoped the decision would draw attention to companies that “do harm.” Numerous other companies in the same industries are not on the ANU’s divestment list.

The ANU engaged consultants CAER to advise it. CAER rated the corporations within the university’s investment portfolio against ethical criteria. Seven corporations receiving the lowest ratings were blacklisted. But this publicly funded university denied the seven companies access to the report or a right of reply before the blacklisting and is keeping the public in the dark about how the ANU determined they were doing harm.

As environmental and ethical awareness continues to rise, corporations in search of equity capital will have stronger incentives to gain a tick of approval from advocacy groups in return for financial contributions to those groups.

Adam Smith warned that: “people of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public.” Community groups have a vital role to play in informing consumers and investors about ethical considerations. They should do so transparently, free of commercial conflicts of interest, to avoid any perception that they and the corporations they support are engaged in a conspiracy against the public.

Source: http://www.afr.com/p/opinion/trading_on_re...