"DairyNZ has decided not to appeal, even though we know that the advert is misleading and hugely unfair to the dairy sector," DairyNZ chief executive Tim Mackle said.
Mackle said the authority had accorded Greenpeace a greater level of freedom of expression in their advertising than that given to standard advertising.
"We also note that there have been very few successful appeals to the ASA against this form of 'advocacy advertising' where opinion-based messages are presented as fact," Mackle said.
Listen to Dominic George interview Dr Tim Mackle above
He said the attacks on dairy farmers by Greenpeace amounted to scare-mongering, and unfairly blamed dairying as the single polluter of rivers and drinking water in New Zealand.
"While farmers are extremely proud of the game-changing past 10 years on dairy farms, we do know there is more to do - no one is denying that," he said.
"Dairy farmers are on a journey to turn around what has been 150 years in the making as a result of activity that includes deforestation and urbanisation, as well as farming," he said.
The sector is part of an initiative called the Sustainable Dairying Water Accord, a public agreement that is independently audited, covering dairy farmers, dairy companies, central government, regional councils and the Federation of Maori Authorities.
Dairy farmers have spent over $1 billion so far on on-farm effluent management systems, fencing waterways and building bridges. They have also planted millions of trees in significant riparian planting and wetland revegetation projects, Mackle said.