Greenwashing: The high price of misleading sustainability claims

Greenwashing remains a key focus area for Australian regulators, with enforcement activity showing no signs of slowing. Since our last update, both the Australian Securities and Investments Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC) have continued to pursue enforcement action against financial and corporate entities for greenwashing and breaches of the Australian Consumer Law.

Recent Federal Court decisions have resulted in significant financial penalties, underscoring not only the ethical and reputational risks of greenwashing but also the substantial legal and economic exposure it creates. In addition, a recent settlement between EnergyAustralia and the Australian Parents for Climate Action (APCA) serves as a timely reminder that greenwashing is increasingly being challenged through private litigation, not just by the regulators.

Businesses that make environmental claims should ensure that they have a reasonable basis for their claims, that they are clear and accurate, and that they do not mislead or deceive their customers or the public.

ASIC has continued to target misleading and deceptive conduct in relation to sustainable finance-related products and services, such as superannuation funds, investment funds and securities. ASIC Commissioner Kate O'Rourke said, "where we've identified greenwashing misconduct, ASIC has intervened to protect investors and consumers, and to maintain market integrity".

ASIC has issued seven further infringement notices since our last update for false or misleading representations about sustainability practices, investments or environmental impact, imposing penalties and requirements for corrective actions.

Another key development is the conclusion of three greenwashing proceedings initiated by ASIC in the Federal Court, each resulting in significant pecuniary penalties. These outcomes include:

• Mercer Superannuation (Australia) Limited (Mercer) was ordered to pay a $11.3 million penalty by the Federal Court after admitting it made misleading statements about the sustainable nature of some of its investment options. The Court found that Mercer marketed the options as suitable for members who were "deeply committed to sustainability" because they excluded investments in companies involved in carbon intensive fossil fuels, alcohol production, and gambling. In fact, they included undisclosed investments in several companies that engaged in these activities.
• Vanguard Investments Australia (Vanguard) was ordered to pay $12.9 million for misleading claims about environmental, social and governance (ESG) exclusionary screens in its bond fund. Vanguard said that the fund would screen out bond issuers with significant activities in fossil fuels and other industries, but this did not always happen. The Court found that 74% of the securities in the fund were not screened against the ESG criteria.
• Active Super was ordered to pay $10.5 million because it invested in various securities that were claimed to be eliminated or restricted by its ESG investment screens. The Court found that Active Super failed to implement adequate systems to ensure that its ESG claims were accurate and consistent with its investment decisions.

Since our last update, Clorox Australia Pty Ltd (Clorox) (the parent company of GLAD) was ordered to pay $8.25 million by the Federal Court for making false or misleading representations about several GLAD bag products being made from “50% ocean plastics”. In addition to the pecuniary penalty, Clorox was ordered to establish an Australian Consumer Law compliance program, publish a corrective notice on its website and pay part of the ACCC’s legal costs.

Following the decision, ACCC Char Gina Cass-Gottlieb said:

There have also been a number of developments in relation to private actions or complaints against businesses regarding alleged misleading environmental claims, most notably the claim brought by APCA against EnergyAustralia.

APCA alleged that EnergyAustralia's "Go Neutral" campaign for its energy and gas products was misleading, as it conveyed an impression to consumers that their emissions had been "cancelled out" by carbon offsets, when in reality the burning of fossil fuels to create energy generates emissions which cannot be undone.

The case settled before the final hearing was set to commence, with EnergyAustralia no longer offering the Go Neutral products to new customers and removing all marketing in relation to the campaign from its website. Additionally, EnergyAustralia issued an apology to customers, acknowledging that “carbon offsetting is not the most effective way to assist customers to reduce their emissions” with a now refined focus on direct emission reducing means.

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.