In the 1960s, hotels in the United States began encouraging the reuse of towels to “save the environment”. While this sentiment was fashionably ‘green’, it was also a neat trick of deceptive marketing. Most hotels were making no effort to reduce their energy waste and were instead looking to save on laundry costs by having guests reduce the number of items sent to the in-house laundromat. This practice of misleading consumers as to the environmental sustainability of a service has come to be known as ‘greenwashing’.
As climate concerns are increasingly at the forefront of investors’ minds, its small wonder why many companies want to advertise themselves as ecologically responsible. In a recent consumer report, the Responsible Investment Association Australasia found that 86% of Australians expect their investments to be ethically and environmentally sustainable.
That being so, companies may be breaking the law when they symbolically engage with environmental issues without substantially addressing them in practice.
ASIC has promised to crack down on financial ‘greenwashing’ as a form of misleading and deceptive conduct. In June last year, Chair Joseph Longo reaffirmed the Commission’s commitment to truth in promotion and accurate representations of financial products:
More and more companies are making representations about their ESG credentials. ‘Net zero’ commitments by ASX 200 companies tripled in the 12 months to August last year, according to an Australian Council of Superannuation Investors report. This accords with ASIC’s own analysis in this area; and that number is likely far higher now.
The Chair went on to announce that ASIC would scour the market for misleading claims related to sustainability and ‘would not hesitate’ to use their range of regulatory tools to ensure compliance. The Commission have not held back, announcing a major investigation of superfunds, trusts and companies who have made climate-related disclosures.
There are many legislative bases from which ASIC can charge corporations with misleading or deceiving consumers. Sections 1041H and 796C of the Corporations Act 2001 cast the net wide in terms of what behaviour can be sanctioned by the Commission. Thus far, ASIC has elected to use s 12DB of the ASIC Act 2001 to issue infringement notices. In particular, s 12DB(1)(a) stipulates that:
False or misleading representations
This provision is particularly well suited to combatting representations made as to the ecological sustainability of a product, as well as broader claims such as ‘net zero’ emissions.
The Commission has handed out nearly $150,000 in infringement notices to four separate companies since October 2022. Tlou Energy Ltd was hit with a $53,280 penalty for contravening s12DB(1)(a) of the ASIC Act 2001. Tlou made two ASX announcements claiming that:
ASIC concluded that Tlou had engaged in misleading and deceptive conduct as it had failed to conduct preliminary research into some of the renewable projects it had ‘announced’. Claims about the carbon-neutrality of the ‘gas-to-power’ project were apparently plainly wrong. Interestingly, many of the representations made by Tlou were communicated by way of diagrams used to illustrate their power production process to investors. This should serve as a reminder to all companies that representations as to the viability of a service are not limited to what is included in a disclosure document (ASIC v Cyclone Engines).
Tlou may have been the first company to attract the ire of the regulator, but it would not be the last. In the space of a month, between early-December 2022 and early-January 2023, ASIC would fine three more organisations:
Thus far, ASIC has only targeted publicly listed entities. The directors and shareholders of a small, proprietary company might be forgiven for breathing a sigh of relief as it is true that large, publicly listed entities tend to take the heat for unsatisfactory climate related disclosures. Proceedings regarding misleading or deceptive net zero claims (ACCR v Santos Ltd) and lawsuits by investors demanding that companies truthfully disclose their gas and fossil fuel connections (Abrahams v CBA, O’Donnell v Commonwealth) have all centred around public companies or the Commonwealth.
Nevertheless, ASIC’s campaign against greenwashing will not end with ASX listed entities. Proprietary companies are subject to the same misleading and deceptive conduct provisions as public companies, meaning that they are just as liable and just as exposed.
All companies should ensure that their environmental, social governance (ESG) credentials are up-to-date and substantiated. Companies should use caution when making representations about the environmental, ethical dimensions of their services. Companies should also avoid vague terms like “eco-friendly” and, where possible, avoid using diagrams and illustrations unless they can be backed-up with evidence. To be clear, all claims should be evidenced, realistic and conveyed in plain language to avoid any ambiguity. Any ‘qualified’ representations or exceptions must be prominently and obviously disclaimed so that the audience has a reasonable opportunity to read them.
As at 28 February 2023, ASIC has commenced its first court proceedings against alleged greenwashing conduct. The corporate regulator has commenced civil penalty proceedings in the Federal Court against Mercer Superannuation (Australia) Ltd (Mercer) for misleading statements about the sustainable nature and characteristics of some of its superannuation investment options. – Watch this space.
In a rapidly changing regulatory environment, it is important to get good advice on the legal risks you face as a business to ensure you can achieve and maintain compliance. If you have any questions or wish to discuss your circumstances with a lawyer, please contact the BAL Lawyers Business & Commercial team on 02 6274 0999.