Will it come out in the wash? Regulators continue their fight against greenwashing and misleading claims regarding ESG

The regulators in Australia are cognisant of the persuasiveness that green and sustainable claims have in influencing individuals to make purchasing or investment decisions. Regulators such as the Australian Competition and Consumer Commission (ACCC) and the Australian Securities and Investment Commission (ASIC) are monitoring the market and taking enforcement action against businesses that are making false or misleading ESG claims.

ACCC keeping a close eye on greenwashing

In October 2022, the ACCC commenced an internet sweep to identify misleading environmental and sustainability marketing claims. This reflects the ACCC’s focus on greenwashing as a key compliance and enforcement priority for 2022/2023. The Deputy Chair of the ACCC, Delia Rickard, stated that:

"Greenwashing is ultimately a form of advertising...Unfortunately, the ACCC is hearing growing concerns that some businesses are falsely promoting environmental or green credentials to capitalise on changing consumer preference.”[1]

On 2 March 2023, the ACCC released their preliminary findings from the greenwashing sweep. The ACCC found that of the 247 businesses reviewed during the sweep, over half (57%) were identified as having made concerning environmental claims. The cosmetic, clothing and footwear, and food and drinks sectors were singled out as the sectors making the most problematic claims about their environmental credentials. The ACCC have indicated that they will be issuing substantiation notices to businesses making environmental claims and will also engage in a range of educational activities to help businesses comply with the legislation. 

Following on from this, on 7 March 2023 the ACCC announced that as part of their 2023/2024 enforcement and compliance priorities, they will expand the scope of their focus on greenwashing beyond consumer and fair trading issues to include competition law and product safety concerns. The ACCC also announced the creation of a new internal taskforce focused on sustainability to service this focus area. 

Although no legal action has yet to arise from the ACCC’s recent greenwashing sweep, the ACCC is not slowing down on stamping out false or misleading environment claims in the market. Companies should keep in mind that any ESG claims must be able to be substantiated with scientifically sound and well-documented evidence. The ACCC has the power to issue a substantiation notice requiring a person to give information and/or documentation to support a claim or representation. Additionally, if a company has asserted that it has obtained a particular certification or standard, it must ensure that it strictly complies with the requirements to maintain the certification.

Along with suffering reputational damage, a breach of the Australian Consumer Law can result in large penalties for businesses with fines up to the greater of:

• $50,000,000;
• if the Court can determine the reasonably attributable benefit obtained, 3 times the value of that benefit; or
• if the Court cannot determine the benefit, 30% of adjusted turnover of the corporation during the breach turnover period for the offence.

The penalty for individuals who contravene the Act is up to $2,500,000 per breach.

ASIC tackling false and misleading ESG claims

Late last year, Bird & Bird published an article covering the ASIC’s first formal action against an entity involved in ‘greenwashing’ – the practice of misrepresenting the extent to which a company, product, service or strategy is environmentally friendly, sustainable or ethical. The article warned that ASIC and the ACCC had made greenwashing an enforcement priority, and that businesses should be wary of the legal and reputational risks associated the practice.

Since the publication of the article, the regulators have stayed the course in their enforcement crackdown, with ASIC having recently commenced its first court action against alleged greenwashing conduct and issuing infringement notices in response to greenwashing concerns. Some examples of these regulatory actions are as follows:

Mercer Superannuation (Australia) Limited (Mercer) (Federal Court litigation)

• On 27 February 2023, ASIC commenced its first Court proceedings against Mercer for allegedly making false and misleading statements about the sustainable nature and characteristics of some of its superannuation investment options and engaging in conduct that could mislead the public. If ASIC are successful in these proceedings, Mercer could be liable to pay the severe maximum penalties under the ASIC Act (set out in our previous article).

Black Mountain Energy Ltd ($39,960 penalty)

• On 5 January 2023, Black Mountain Energy, an Australian listed energy company, paid the above amount to comply with three infringement notices issued by ASIC. These notices were issued regarding false/misleading statements made to the Australian Securities Exchange (ASX) between December 2021 and September 2022. The company claimed that they were creating a natural gas development project with ‘net zero carbon emissions’ and that the greenhouse gas emissions associated with ‘Project Valhalla’ would be net zero. ASIC issued the notices out of concern that the company had no reasonable basis to make the representations.

Diversa Trustees Ltd ($13,320 penalty)

• On 22 December 2022, Diversa, a superannuation trustee, paid the above amount in response to an infringement notice issued by ASIC. The regulator was concerned with statements made on the website for its ‘Cruelty Free Super’ superannuation product, which contained statements that this product prevented investment in companies involved in ‘polluting and carbon intensive activities’, ‘financing or support of activities which cause environmental and social harm’ and ‘poor corporate governance’ – known as applying investment screens. ASIC held concerns that, although some of the investment screens stayed true to the claims, others were more selective and limited than the website alluded.

In light of this regulatory action, ASIC is unlikely to ease up on their momentum taking action against allegations of greenwashing, with ASIC Commissioner Danielle Press, saying:

"Several investigations that we have [under way] in greenwashing and superannuation… I suspect that [those investigations] will result in court action and if they don’t result in court action, they’ll result in certainly infringement notice action.”[2]

Also, the regulators won’t have blinders on to non-environmental issues. ASIC has made clear that misleading ethical propositions and claims about governance practices also remain on its enforcement radar.[3]

If you need advice in this space, the team at Bird & Bird are well placed to assist you. Please reach out to Jonathon Ellis in relation to investigations and disputes relating to corporations law and Lynne Lewis for advice on issues relating to consumer law.

Authors: Jonathon Ellis, Lynne Lewis, Richard Lovell, Katrina Dang, Ben Holmes