'Greenwashing' by businesses in Australia

Introduction

Government regulators, including ASIC and the ACCC, are prioritising investigations and assessments of environmental, social and corporate governance policies and statements of Australian businesses and investment funds for misleading representations and vague and unqualified claims.

In February this year, ASIC filed its first court action of alleged greenwashing, commencing civil penalty proceedings in the Federal Court against Mercer Superannuation (Australia) Limited (Mercer) for allegedly making false or misleading representations, and/or engaging in misleading conduct in relation to the sustainable nature and characteristics of some of its superannuation investment options.

The Australian Financial Review ESG Summit 23 published an article on 6 June 2023 titled ‘Worldwide crackdown on the way, regulators warn’. ASIC chairman Joe Longo said ASIC had more cases under way against alleged greenwashers and that while he can’t speak to ongoing actions, ASIC has further surveillances and investigations at foot.

Lawyers for Conservation Council SA have also recently lodged a complaint with ASIC, asking whether the company NeuRizer, has made a series of misleading claims in relation to its planned underground coal gasification facility and fertiliser factory.

Background

It has been reported that the term “greenwashing” was originally coined by environmentalist Jay Westerveld in a 1986 essay in which he claimed the hotel industry falsely promoted the reuse of towels as part of a broader environmental strategy; when, in fact, the act was designed as a cost-saving measure.

In June 2022, ASIC published an Information Sheet and defined “greenwashing” as, in relation to investments, the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical.

The Information Sheet provided that there has been an increase in investor demand for sustainability-related financial products in the Australian market. With this comes a growing risk of greenwashing and, as a result, investors being confused or misled. It expressed the consequences of greenwashing as ‘distorting relevant information that a current or prospective investor might require in order to make informed investment decisions and eroding investor confidence in the market for sustainability-related products and poses a threat to a fair and efficient financial system.’

ASIC Commissioner, Cathie Armour published an online article in July 2021 (originally published in AICD’s Company Director magazine in July 2021) which suggests that boards should be mindful of the prohibitions in the Corporations Act 2001 (Cth) on misleading and deceptive conduct and false or misleading statements that apply in relation to financial products and encourages boards to look out for any greenwashing and to ask whether their company’s disclosure around environmental risks and opportunities or their fund’s promotion of ESG-focused investment products accurately reflects their practices in this area.

The ASIC Act also contains general prohibitions against a person making statements that are false or misleading or engaging in dishonest, misleading, or deceptive conduct in relation to a financial product or service.

Australian Securities and Investments Commission v Mercer Superannuation (Australia) Limited (ACN 004 717 533)

On 27 February 2023, ASIC filed its first court action of alleged greenwashing, commencing civil penalty proceedings in the Federal Court Victorian Registry against Mercer Superannuation (Australia) Limited (Mercer) for allegedly making false or misleading representations, and/or engaging in conduct liable to mislead the public in relation to the sustainable nature and characteristics of some of its superannuation investment options.

The application is made pursuant to s 12DB(1)(a), s 12DF(1), s 12GBA(1), s 12GBB(1), s 12GD(1) and s 12GLB(1) of the ASIC Act 2001 (Cth) and s 21 of the Federal Court of Australia Act 1976 (Cth).

Mercer’s alleged conduct

Mercer operated a superannuation trustee service, as trustee of the Mercer Super Trust, to provide financial product advice, deal in a product in relation to superannuation and life products and provide a superannuation trustee service to retail and wholesale clients.

Mercer offered a range of superannuation investment options, including a category of options which were referred to as the “Sustainable Plus” Investment Options. The “Sustainable Plus” Investment Options included:

• Mercer Sustainable Plus High Growth;
• Mercer Sustainable Plus Growth;
• Mercer Sustainable Plus Moderate Growth;
• Mercer Sustainable Plus Conservative Growth;
• Mercer Sustainable Plus Australian Shares;
• Mercer Sustainable Plus International Shares; and
• until 1 June 2022, Mercer Sustainable Plus Shares.
  

ASIC’s position

ASIC allege that by certain video and website statements made by Mercer between 12 November 2021 to 27 February 2023, Mercer represented that funds invested in SPIOs were not invested and would not, in future, be invested in companies involved in, or deriving profit from, the production or sale of alcohol, gambling or the extraction or sale of carbon intensive fossil fuels.

However, it is alleged that, from at least 23 January 2022 to at least 18 November 2022 Mercer Sustain Plus Australian Shares and Mercer Sustainable Plus Shares held investments in two companies involved in, or deriving profit from, the extraction or sale of carbon intensive fossil fuels and Growth, Conservative Growth, Moderate Growth and High Growth, collectively held investments in 15 companies involved in, or deriving profit from, the extraction or sale of carbon intensive fossil fuels, 15 companies involved in the production or sale of alcohol and 19 companies involved in gambling.

It is further alleged, at all relevant times between 12 November 2021 and at least 27 February 2023, Mercer did not ensure that all asset classes of the SPIOs in which funds were invested were excluded from investing in companies involved in, or deriving profit from, the production or sale of alcohol, gambling or the extraction or sale of carbon intensive fossil fuels.

ASIC alleges that the representations were false or misleading and/or liable to mislead the public and that the future representations were representations as to future matters which Mercer did not have reasonable grounds to make.

ASIC is seeking:

• Declarations that Mercer contravened the ASIC Act by making false or misleading representations on its website that funds invested in Mercer’s SPIOs were not invested in, or would not, in future, be invested in companies involved in, or deriving profit from, the production or sale of alcohol, gambling or the extraction or sale of carbon intensive fossil fuels;
• Orders that Mercer pay pecuniary penalties in respect of its contraventions of the ASIC Act;
• Adverse publicity orders requiring Mercer to:
  • disclose the contraventions alleged in this proceeding, and the circumstances giving rise to those contraventions; and
  • publish by form, means and channels to be determined by the Court, at its own expense, those disclosures; and

• An injunction restraining Mercer from continuing to engage in false or misleading conduct.

The date for the first case management hearing is yet to be scheduled by the Court.

ACCC’s sweep of environmental claims

To understand the nature and prevalence of environmental and sustainability claims made by businesses in Australia, the ACCC conducted an internet sweep (the sweep). The sweep took place between 4 October and 14 October 2022 and looked at 247 different businesses and/or brands across 8 sectors:

1. Energy;
2. Motor vehicles;
3. Electronics and home appliances;
4. Textiles, garments and shoes;
5. Household and cleaning products;
6. Food and beverages;
7. Cosmetic and personal care; and
8. Takeaway packaging.

The aim of the sweep was to identify industries or sectors which commonly use environmental and sustainability claims, and to assess whether these claims have the potential to mislead consumers. In looking at claims, the sweep focused on what the ordinary consumer would understand the claim to mean. The sweep also aimed to identify areas where further guidance for both businesses and consumers is needed. The sweep was not intended to identify specific breaches of the Australian Consumer Law (‘ACL’) however, the ACCC will undertake further work to determine whether individual environmental claims identified during the sweep may be a breach of the ACL.

In March 2023, the ACCC published their findings.

Out of the 247 businesses swept, 57% identified as making concerning claims.
The most common issues identified in the sweep were the following:

• Vague and unqualifies claims;
• A lack of substantiating information;
• Use of absolute claims;
• Use of comparisons;
• Exaggerating benefits or omitting relevant information;
• The use of aspirational claims, with little information on how these goals will be achieved;
• Use of third-party certifications; and
• Use of images which appear to be trustmarks.
  

Takeaways

The ACCC will now be conducting further analysis of these issues and will undertake enforcement, compliance, and education activities.

Where concerns have been identified with specific businesses, a more targeted assessment of the conduct will be undertaken to determine the appropriate compliance or enforcement approach. Depending on the circumstances, this may lead to an administrative resolution, issuing an infringement notice, or legal proceedings.

To avoid regulatory enforcement, it is important for businesses in Australia to consider the following questions provided by the ASIC 2022 Information Sheet:

• Is your product true to label?
• Have you used vague terminology?
• Are your headline claims potentially misleading?
• Have you explained how sustainability-related factors are incorporated into investment decisions and stewardship activities?
• Have you explained your investment screening criteria? Are any of the screening criteria subject to any expectations or qualifications?
• Do you have any influence over the benchmark index for your sustainability-related product? If you do, is your level of influence accurately described?
• Have you explained how you use metrics (such as ESG scores) related to sustainability?
• Do you have reasonable grounds for a stated sustainability target? Have you explained how this target will be measured and achieved? and
• Is it easy for investors to locate and access relevant information?

This article provides general commentary only. It is not legal advice. Before acting on the basis of any material contained in this article, seek professional advice.

Co-author: Irini Kourakis

Practice: Disputes

Position: Lawyer

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