This article is an update to Lockton's Boardroom Briefing (opens a new window) published in Q3 2022.
In summary:
In March 2023, ASIC brought the first civil penalty proceeding against a superannuation fund for allegedly ‘greenwashing’ fossil fuel and gambling investments.
This is the first time ASIC has taken an Australian entity to court regarding alleged greenwashing conduct.
In 2022, ASIC issued more than $140,000 in infringement notices for alleged greenwashing against companies in the energy and financial services spheres.
ASIC has several other investigations under way for potential greenwashing.
Companies and their directors face risk of legal action for misleading representations if their actions on environmental and climate-related strategy does not meet the representations made.
More ‘conscious buying and investing’
Many customers and investors now want to see action in line with social, ethical and environmental principles. In particular, companies are increasingly aware they must act in accordance with the risk climate change presents.
Recent regulatory action underlines the need for companies to ensure that when promoting their ethical or sustainability credentials to attract investors, they can show their representations reflect the true position and are not misleading.
Greenwashing
The term “greenwashing” has been coined to describe the act of over-stating or mis-representing a financial product or company’s environmental credentials or the achievability of forward-looking targets. For example, making vague or unsupported claims about reductions in emissions or not taking into account all relevant metrics or having sufficient grounds when committing to a net zero target.
ASIC has demonstrated it will pursue enforcement action in serious cases of greenwashing. Several formal investigations have been carried out and $140,000 in infringement notices have been issued since September 2022.
ASIC’s Civil Penalty Prosecution
In the first litigated action of its kind in the Federal Court, ASIC alleges the superannuation fund engaged in misleading and deceptive conduct and made false statements when it marketed options as suitable for members who are deeply committed to sustainability because they did not invest in companies involved in intensive fossil fuels, alcohol productions and gambling.
ASIC claims there were actually investments in several companies involved in extraction or sale of carbon intensive fossil fuels, companies involved in alcohol productions and gambling.
If ASIC is successful, this may be the first case in which the Federal Court will make declarations and potentially impose penalties in respect of greenwashing.
Greenwashing case against an Australian gas giant continues
The shareholder activist litigation by Australian Centre for Corporate Responsibility against one of Australia’s largest oil and gas producers also continues in the Federal Court. The case is expected to go to trial in 2023.
The shareholder group seeks an injunction to restrain the company from publishing statements that refer to its gas projects as “clean energy” and declarations including that the company misled investors by claiming to have a clear and credible plan to achieve net zero by 2040 and that the extraction and use of natural gas does not have a material adverse effect on the environment.
ACCC
The ACCC is also increasingly active in its surveillance of greenwashing practices in the consumer sphere.
The ACCC released findings of a review of 247 businesses which indicated 57% of the businesses surveyed had made which the ACCC considered were concerning claims about their sustainability practices.
These included making vague claims about the green or eco-friendly credentials of products, not providing any supporting evidence for claims about the sustainability of goods or services and making absolute claims which could not be proven.
Future potential actions
ASIC’s scrutiny of superannuation funds and their investments is set to continue.
In recent comments in the Australian Financial Review, Commissioner Danielle Press referred to funds who promote their ability to exert influence on the climate policies of fossil fuel producing companies by remaining active investors in those companies. She indicated ASIC would be interested in looking at any examples where the voting records and actual actions by these funds as shareholders of fossil fuel producing companies do not reflect their stated objectives on climate.
If it were to be identified, a case like this would take the regulator’s greenwashing litigation in Australia in an interesting new direction, essentially holding funds to account for not being active enough in influencing large scale fossil fuel emitters, if they have made representations that can be shown to be misleading.
Final thoughts for the boardroom
Reflecting on recent cases, whether it’s regulators or shareholder activists, greenwashing is firmly in the spotlight as companies and boards manage climate risk and the transition to net zero.
Disclosures setting out environmental and ethical representations need to be regularly reviewed to ensure they can be substantiated.
ASIC’s Information Sheet 271 “How to avoid greenwashing when offering or promoting sustainability related products” provides helpful guidance for responsible entities of managed funds and trustees of superannuation entities but the key principles can also be applied to listed companies.
While recent regulatory and civil actions in Australia have been against the entity, international developments in the UK and US show activist shareholders will look for novel ways to bring actions against boards.
Boards need to ensure they have appropriate and robust climate and sustainability procedures and strategies in place to achieve their sustainability representations.
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