Environmental, Social & Governance Discussions

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Chapter 9 – Corporate Greenwashing

 Introductory articles on emerging exposures, risk mitigation
and insurance risk transfer for clients of Omnisure.

 A compendium of introductory ESG articles on emerging exposures, risk mitigation and
insurance risk
transfer for clients of Omnisure with claims examples.

Martin Birch – March 2022

Chapter 9 – Corporate Greenwashing

Regulated companies need to be very careful when making claims about their climate-friendly credentials. In the environmental context, potentially misleading disclosures and claims are known as ‘greenwashing’, a term which encompasses a wide range of actions which exaggerate and misrepresent ‘green’ credentials.  At one end of the scale it may be marketing spin designed to create a favourable impression about a company or its products. While at the more nefarious end it is conduct designed to mislead and deceive investors and customers.

shown by this latest suit brought by the Australasian Centre for Corporate Responsibility (ACCR), even a hint of a misleading climate-related disclosure or claim can quickly become a material financial and reputational risk.

‘Red flag’ greenwashing practices

There are several aspects of a company’s climate reporting and promotion which are ripe for allegations of greenwashing:

  • Climate-related disclosures: financial and other disclosures regarding exposure to climate risk;
  • Broad corporate goals: representations in relation to drivers such as:
    • alignment with Paris Agreement goals;
    • achievement of net zero or other emissions reductions targets by a specified date; and
  • Green marketing:product and brand marketing which makes representations about products or practices being environmentally friendly, sustainable or ethical.

Misleading or deceptive conduct allegations

If not carefully managed, each of these elements has the potential to become misleading or deceptive, or a breach of relevant reporting obligations. In turn, each raises the potential for actions from a broad range of possible claimants including class actions litigants and regulators such as the ACCC, ASIC or APRA.

Outside the financial reporting rules, actions targeting greenwashing behaviours are most likely to be brought under the Australian Consumer Law, or the ASIC Act.  Among regulators, the ACCC has been alive to greenwashing for some time (see the ‘green marketing’ guide published in 2011) and has not shied away from green claim actions, nor seeking significant penalties.

The Paradox

Climate risk and opportunity cannot be ignored. As previously discussed by Corrs Chambers Westgarth Lawyers (CCW), companies are obliged to consider exposure to climate risk and make climate-related disclosures. In addition, many companies want to provide climate rated information in response to calls for corporations to take more climate responsibility. To the extent that companies are publishing climate-related disclosures, targets or even just mission statements, it critical to develop and integrate appropriate procedures into assessment and verification frameworks, so that disclosures and claims are legally supportable, and don’t simply open up additional risks.

Minimizing Greenwashing Risks

There are several steps that can be taken to strike the right balance and minimise greenwashing risks. Broadly, that involves turning your mind to considerations of:

  • whether statements are open to misinterpretation;
  • whether representations about the future, such as commitments to net zero or staged emission-reduction targets, are based on reasonable grounds;
  • whether statements which may once have been true remain so.  In a fast-changing environment, it is easy for representations to move from accurate to misleading, and so regular and probing re-assessment is needed.

Please see our Foundation Document1  for further information and about Green marketing and the Australian Consumer Law .

Similarly, in the context of setting net zero targets, Noel Hutley SC and Sebastian Hartford Davis proposed several practical steps for avoiding greenwashing in their most recent opinion, including:

  • developing a net zero strategy which is integrated with the company’s operational strategy and documenting any assumptions;
  • explaining the emissions reductions the target encompasses (Scope 1, 2 and 3) and the time frame in which those reductions are to take place; and
  • continually reassessing the achievability of the target and disclosing changes.

For climate-related financial disclosures, there are additional steps companies should take to ensure compliance with legal requirements and avoid greenwashing allegations, discussed in a document by Corrs Chambers Westgarth (CCW) Lawyers.

Looking forward: remain on high alert  

According to CCW, a claim launched by the Australian Centre for Corporate Responsibility (‘ACCR’) is probably just the beginning. For instance, ASIC has announced a review of ESG claims on investment products by regulated entities to see whether the practices of the funds match the promotion of the products. Regulatory action means potential exposure to significant penalties.

1 Our Foundation Document is the original full text version of “ESG Discussions – Introductory articles on emerging exposures, risk mitigation & insurance risk transfer” for clients of Omnisure, compiled by Martin Birch. Register on our website for a full copy.

Please contact Martin Birch for a copy of the full-text Foundation Document at martin.birch@omnisure.com.au