A climate action scheme backed by the government has been accused of abetting greenwashing by some of the biggest corporations in Australia.

As Australians become more concerned about the impacts of climate change and attempt to live more sustainably, greenwashing has posed challenges for regulators, ahead of a Senate inquiry holding hearings this week.

Though the consumer and financial services watchdogs are attempting to clamp down on these practices among businesses, Australia Institute climate and energy program director Polly Hemming said these efforts were being undermined by the government.

“You can’t address greenwashing by the private sector when the government’s own climate policies are facilitating some of that behaviour,” she told a Senate inquiry on greenwashing.

“We’ve got a government that is still subsidising fossil fuels, yet businesses are expected to be making emissions reductions plans.”

According to the Australian Competition and Consumer Commission, “greenwashing” describes false or misleading environmental claims that make businesses appear more environmentally beneficial than they really are.

Ms Hemming took aim at the government’s Climate Active program, which offers a certification for entities that have reached a state of “carbon neutrality.” 

The program also encourages them to offset their emissions by investing in new technology, changing the way they operate or purchasing carbon offsets. 

Climate Council scientists and other environmental groups have slammed carbon offsets, claiming they allow companies to continue polluting and cannot replace genuine emissions reductions.

“It’s cheaper to greenwash in Australia, it’s cheaper to buy carbon offsets, it’s cheaper to pay a certification fee to Climate Active and buy offsets from a wind farm than it is to implement the technology,” Ms Hemming said.

“This is what I mean by state-sponsored greenwashing.”

Fuel giant Ampol, for example, had been certified by Climate Active because of a single product, its “carbon-neutral” petrol.

She noted the program was not a failure of the current Labor government but the culmination of successive failures over time and has urged Climate Active be referred to the Auditor-General.

It was riddled with administrative failures, relied on voluntary claims and was displacing regulatory roles, she said.

The consumer watchdog’s executive general manager of consumer and fair trading Rami Greiss said the Climate Active trademark had not yet received agency approval due to a lack of clarity around the scheme’s rules.

Greens senator and inquiry chair Sarah Hanson-Young called the revelation “extraordinary” and called on the government to ban greenwashing.

Representatives from super fund Mercer, which was sued by the Australian Securities and Investments Commission for greenwashing, told the inquiry it had taken steps to remove exposure to coalminers Whitehaven and New Hope in its sustainable product options.

“We’re always seeking to be a trusted participant in the industry for our members,” Mercer CEO Tim Barber said.