Greenwashing regulatory roundup

In this article, we explore the state of the regulatory environments across different jurisdictions and what your business needs to be aware of when making ESG representations.

Australia

In a landmark decision, Australia’s corporate regulator, the Australian Securities and Investment Commission (ASIC) has been successful in its first greenwashing penalty proceedings against Mercer Superannuation (Australia) Limited (Mercer), where the Federal Court ordered a AUD $11.3 million penalty against Mercer for its greenwashing conduct.

This penalty follows Mercer’s admission to making false and misleading representations relating to the sustainability of its superannuation ‘Sustainable Plus’ investment products. These investment products were marketed as being sustainably-friendly, purportedly excluding investments in fossil fuels, alcohol, and gambling. The Court found that the investments in these products included companies involved in fossil fuel extraction and sales (15 companies), alcohol production (15 companies), and gambling (19 companies).

The Mercer decision also provides insight into the factors the Court considered when exercising its discretion to determine the quantum of an appropriate civil penalty. The maximum penalty available to the Court for a single contravention of the relevant legislation was between AUD $20.5 - 22.4 million. The Court accepted the parties’ joint submission that AUD $11.3 million was an appropriate penalty, having regard to the:

• public policy rationale of deterring other persons from engaging in greenwashing;
• nature and extent of the contraventions;
• courses of conduct giving rise to the contraventions;
• actions and omissions of Mercer’s senior management relevant to the contraventions;
• loss or damage suffered and benefits obtained from the contraventions;
• Mercer’s size and financial position;
• Mercer’s compliance history; and
• Mercer’s cooperation with ASIC.

ASIC’s successful proceedings against Mercer demonstrate the regulator’s commitment to its intent to tackle greenwashing, amongst an increasing concern over companies adopting misleading ESG initiatives to capitalise on consumer interest and values. ASIC Deputy Chair Sarah Court commented on the Mercer decision stating:

‘‘Today’s matter is a strong example to the financial services industry of the greenwashing action we will take. We will continue to monitor the market for ESG-related claims that cannot be validated by evidence to ensure the market is fair and transparent”.

See our previous article here for further details on the growing emphasis on greenwashing regulation and the results of other successful ASIC regulatory actions, including infringement notices.

In this context, we expect Mercer will not be the last to face substantial penalties for greenwashing. In March 2024, ASIC was successful in obtaining Court declarations that Vanguard Investment Australia made misleading ESG representations in relation to one of their index funds. This matter was heard in respect of penalties and costs on 1 August 2024, and we expect judgment to be handed down soon.

The UK

Regulators in the UK are yet to take any action via the courts with regard to greenwashing claims however they have put codes of practice in place and in some cases started internal investigations against those who they consider are infringing.

The Financial Conduct Authority (FCA) has published its anti-greenwashing guidance which came into force at the end of May 2024. The guidance is there to ensure that consumers are protected from being sold financial products and services that are misleading in their descriptions regarding the sustainability of those products and services.

Following a Freedom of Information request by environmental law pressure group Client Earth, the FCA has confirmed that it has opened one enforcement case but it has refused to publish the parameters of its investigation, whether it is actually in relation to greenwashing or which company it is investigating.

In contrast other regulators have been flexing their powers in this area with both the Advertising Standards Authority (ASA) and the Competition and Markets Authority (CMA) taking action. The ASA has been particularly active upholding complaints against environmental claims made in adverts by amongst others those in the aviation sector, retailors, car manufacturers and Transport for London which operates the London Underground. Whilst in July 2022 the CMA started an investigation into greenwashing claims in the retail sector accepting formal undertakings from the retailers involved in March 2024 to provide clear and accurate information regarding their green claims going forward. When the relevant provisions of the Digital Markets Competition and Consumers Act 2024 come into force the CMA will be able to impose in addition substantial penalties on UK businesses which breach any of the consumer protection laws which fall within its ambit, including those relating to the environment.

Please reach out to Bird & Bird’s global greenwashing experts listed below for advice on this developing space.