Greenwashing at a glance
| Greenwashing continues to be a key enforcement priority for both ASIC and the ACCC.G |
| The Commonwealth Senate Standing Committees on Environment and Communications Greenwashing Inquiry is due to report 28 June 2024 in relation to claims made by companies, the impact of these claims on consumers, regulatory examples, advertising standards, and legislative options to protect consumers. |
| The International Sustainability Standards Board’s (ISSB) released its inaugural International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards in June 2023 – a significant milestone in global climate reporting. |
| Treasury has released its final draft legislation to introduce a standardised, internationally- aligned mandatory climate-related financial disclosure regime, with the first sustainability reporting period for certain entities intended to commence 1 July 2024. |
| The advertising self-regulatory body, the Australian Association of National Advertisers, has commenced a review of its Environmental Claims Code. |
With a growing focus on sustainability in the community and increased expectations from investors, there is mounting pressure on businesses of all sizes and industries to demonstrate positive environmental and sustainability credentials.
ASIC has recognised that this theme poses increased risk of poor disclosures and greenwashing, including the use of net zero statements and other sustainability-related claims which can have a negative impact on efficient capital markets. In addition to the proposed disclosure requirements in respect to sustainability, ASIC intends to crack down on the practice of ‘greenwashing’ to support market integrity and efficiency.
Greenwashing is not a new concept – greenwashing is fundamentally a form of misleading and deceptive conduct, but often to enhance or exaggerate claims of sustainability or ethical practices. In ASIC’s Corporate Plan 2023–27, ASIC outlined one of its core strategic projects to take action, including enforcement action, to deter greenwashing.
Across 2023, ASIC demonstrated its commitment to delivering on this project by having issued numerous infringement notices and commencement of civil proceedings in the Federal Court against three entities (Mercer Superannuation, Vanguard and Active Super) for allegedly misleading sustainability-related statements. A summary of these cases is available at the end of this article.
Most recently, on 28 March 2024, ASIC succeeded in its greenwashing civil penalty action against Vanguard, with the Federal Court declaring that Vanguard contravened the law by making misleading claims about certain environmental, social and governance exclusionary screens that were applied to investments in a Vanguard index fund. Per ASIC’s media release (24-061MR) published on the same day, ASIC Deputy Chair Sarah Court stated that:
‘As ASIC’s first greenwashing court outcome, the case shows [ASIC’s] commitment to taking on misleading marketing and greenwashing claims made by companies in the financial services industry. It sends a strong message to companies making sustainable investment claims that they need to reflect the true position.’
ASIC’s approach to enforcement for greenwashing
ASIC has been described as ‘proactive, strategic and bold’ in the way it sets its strategic priorities each year and uses its limited resources to pursue them, particularly against the ‘big end of town’ and even where that involves ‘testing the limits of the law’. Specifically, the energy, mining, manufacturing, retail and finance (including superannuation) industries have been to date the focus of ASIC’s enforcement action for greenwashing.
Further, ASIC has flagged that its enforcement focus will continue to be on net-zero statements and targets, and the use of certain terminology (such as ‘clean’, ‘green’, ‘carbon neutral’ and ‘low carbon’), without a reasonable basis, vague terms (for example, ‘social diversity’, ‘robust sustainability practices’, ‘protection of the planet’, etc.) and inaccurate labelling in sustainability-related funds.
According to the ASIC Intervention Report 763, released 10 May 2023, ASIC’s enforcement action has resulted in companies, for example, issuing corrective disclosure statements to remove net zero carbon emissions statements, including net zero targets where the company is unable to substantiate how the target could be achieved, and to provide further details about steps taken towards having a zero-carbon emissions footprint, expected timeframes and details about off-setting strategies.
Examples of this include:
| Corrective disclosure – ‘clean energy’ |
| A mining company was required to qualify its ‘clean green’ claims in its prospectus. The company had not completed studies that assessed the feasibility of adopting renewable energy sources or other carbon abatement strategies that would be required to achieve a lower carbon footprint. The disclosure was amended to make clear that this was a future- focused aspiration only. |
| Corrective disclosure – ‘cleanenergy’ |
| A mining company was required to qualify its ‘clean green’ claims in its prospectus. The company had not completed studies that assessed the feasibility of adopting renewable energy sources or other carbon abatement strategies that would be required to achieve a lower carbon footprint. The disclosure was amended to make clear that this was a future-focused aspiration only. |
| Infringement notice – net zero statements |
| ASIC issued three infringement notices to Black Mountain Energy Limited (BME) on the basis that ASIC had concerns that BME did not have a reasonable basis for statements in ASX announcements that claimed BME was creating a natural gas development project with ‘net- zero carbon emissions’ and the greenhouse gas emissions associated with that project would be net-zero. |
It is also worth noting that aside from regulators, third party actions alleging greenwashing are increasing both in Australia and internationally, with plaintiffs relying on corporate and consumer protection laws to interrogate companies’ environmental and sustainability-related claims.
The rise of greenhushing
In light of increased enforcement action for misleading and deceptive sustainability statements, one may be inclined to avoid making any such statements at all. However, the practice known as ‘greenhushing’ – under reporting or hiding environmental and sustainability credentials from public view – has been described by ASIC Chair, Joesph Longo, as ‘just another form of greenwashing’. Therefore, careful consideration is required to ensure that appropriate disclosures are being made.
How to avoid greenwashing claims
As resource and renewable companies are on ASIC’s radar for greenwashing, it is particularly important for these organisations to be prudent with statements as to sustainability. ASIC has demonstrated that its investigations are not limited to disclosure documents and other market releases but may also include less formal company statements, such as:
- social media posts;
- website advertisements; and
- videos and verbal statements by officers at shareholder meetings.
Further, ASIC has demonstrated a willingness to take action in relation to historical statements. As such, we recommend undertaking a ‘health check’ audit of historical and current sustainability statements to determine if sustainability claims made are accurate, complete, reasonably based and appropriately qualified and whether any corrective statements are required.
Moving forward, it will be increasingly important to establish appropriate systems and processes to manage sustainability statements to ensure:
- any specific terminology used is clearly explained;
- claims have a reasonable basis for being made; and
- any disclaimers or qualifications to any claims made are obvious and as prominent as the claim itself.
In this regard, ASIC has released an information sheet which serves as a helpful guide for communication teams and spokespersons to review prior to making any verbal or written sustainability statements on behalf of the company.
Given the evolving regulatory environment, it will also be critical for resource and renewable companies to consider undertaking greenwashing audits on an ongoing basis, including:
- engaging advisers to verify the credibility of certain disclosures;
- conducting supply chain due diligence; and
- substantiating any third-party claims which the company relies upon for their sustainability statements.
Looking forward
With increasing demand for greater transparency by businesses on environmental and sustainability issues, and the imminent introduction of a mandatory climate-related financial disclosure regime in Australia, businesses are being pressured as part of their social licence to make sustainability statements about its performance and commitments. However, care needs to be taken to ensure that these statements are not misleading or deceptive – and that includes by omission.
As Australia transitions to meet its 2050 net zero commitment, which is now enshrined in legislation (Climate Change Act 2022 (Cth)), the framework around greenwashing will evolve and possibly move beyond misleading and deceptive conduct to specific regulation and director and officer duties. Therefore, we reiterate the importance of undertaking a ’health check’ of your sustainability statements both historically and on an ongoing basis to ensure they do not fall foul of expectations of regulators, the community and investors.
Summary of ASIC’s civil penalty cases so far
| Case bites as at 28 March 2024 | |||||
| Mercer Superannuation | Vanguard | Active Super | |||
| Australian Securities & Investments Commission v Mercer Superannuation (Australia) Limited ACN 004 717 533 | Australian Securities & Investments Commission v Vanguard Investments Australia Ltd ACN 072 881 086 | Australian Securities & Investments Commission v LGSS Pty Limited ACN 078 003 497 as trustee for Local Government Super ABN 28 901 371 321 | |||
| Filed | 27 February 2023 | Filed | 24 July 2023 | Filed | 10 August 2023 |
| Status | Open | Status | Open | Status | Open |
| Industry | Superannuation | Industry | Superannuation | Industry | Superannuation |
| Summary of ASIC’s allegations | |||||
| ASIC alleges Mercer made false and misleading statements and engaged in conduct that could mislead the public by making statements about the sustainable nature and characteristics of some of its superannuation investment options. Mercer marketed its ‘Sustainable Plus’ investment option as suitable for members who ‘are deeply committed to sustainability’ because they excluded investments in companies involved in carbon intensive fossil fuels like thermal coal, alcohol production and gambling. ASIC alleges members who took up the Sustainable Plus options had investments in companies involved in industries that Mercer claimed were excluded. | ASIC alleged that Vanguard made false and misleading statements and engaged in conduct liable to mislead the public in representing that all securities in the Vanguard Ethically Conscious Global Aggregate Bond Index Fund (Fund) were screened against certain ESG criteria. Vanguard claimed the index on which the Fund was based excluded issuers with significant business activities in a range of industries, including those involving fossil fuels. ASIC alleges that Vanguard exposed investor funds to investments which had ties to fossil fuels, including those with activities linked to oil and gas exploration. In Justice O’Bryan’s judgment on 28 March 2024, it was noted that Vanguard admitted that the statements it made concerning ESG screening were false or misleading, albeit it disputed the reasons for some of the claims were narrower than alleged by ASIC. | ASIC alleges Active Super engaged in misleading conduct and made misrepresentations to the market relating to claims it was an ethical and responsible superannuation fund. ASIC alleges Active Super exposed its members to investments it claimed to restrict or eliminate (such as tobacco manufacturing, oil tar sands, gambling and investments in Russian companies). | |||
| Mediums on which the alleged conduct was made | ||
| ASIC alleges Mercer made statements on its website both in written form and by way of video. | ASIC alleged Vanguard misled the public in Product Disclosure Statements published between 7 August 2018 to 17 February 2021, a media release issued in August 2018, in statements on its website, statements made in an interview with Finance News Network and statements made in a presentation at a Finance News Network Fund Manager Event, both of which were recorded and published online. | ASIC alleges misrepresentations were made on Active Super ’s website, disclosure documents and on Facebook, Instagram and LinkedIn. |
| Remedies sought by ASIC | ||
| ASIC is seeking declarations and pecuniary penalties from the Court. ASIC also seeks injunctions preventing Mercer from continuing to make any of the alleged misleading statements on its website, and orders requiring Mercer to publicise any contraventions found by the court. | ASIC is seeking declarations and pecuniary penalties from the Court. ASIC also seeks orders requiring Vanguard to publicise any contraventions found by the Court. The matter has been listed for further hearing on 1 August 2024 to deal with the issue of penalty and costs. | ASIC is seeking declarations, pecuniary penalties, adverse publicity orders and an injunction against Active Super from the Court. ■ |
This is an article from our 2024 Edition of Emerging Issues for the Australian Energy and Resources Industry. To read more from this publication, click here.