ASIC commences court proceedings for alleged 'greenwashing' for the first time ever

In Brief - ASIC commenced its first ever court proceeding for alleged greenwashing conduct against a superannuation fund amid its crackdown on greenwashing in the financial services and products sector. 

On 28 February 2023, the Australian Securities and Investment Commission (ASIC) announced it was commencing civil penalty proceedings against Mercer Superannuation (Australia) Limited (Mercer) for alleged greenwashing conduct. This will be ASIC's first time taking an Australian entity to court for alleged greenwashing conduct, indicating that they are willing to enforce penalties that extend beyond infringement notices.

Meanwhile, other regulators are taking action in their respective fields of jurisdiction. The Environmental Defence Office (EDO) is targeting energy and resources companies making alleged misleading and deceptive statements. The Australian Competition and Consumer Commission (ACCC) has announced that consumer and fair trading issues in relation to environmental claims and sustainability will be an enforcement priority for 2022-23. 

What is 'greenwashing'?

In 2023, ASIC identified 'misleading conduct in relation to sustainable finance including greenwashing' as one if its main enforcement priorities. Greenwashing is the practice of misrepresentation about how sustainable or environmentally-friendly a fund's or company's practices are. ASIC has defined greenwashing in relation to investments as 'the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical'.

There is a concern about organisations exaggerating their green credentials to meet demand for sustainable products and services amid growing concern about climate change. This is taking place while rivers of money are being directed into ESG funds (Environmental, Social Governance) from investors that wish to align their investments with their ethical position.

Capturing these funds can be tempting, however, corporations need to be mindful when making representations about how sustainable and ethical their practices are and ensure that they are accurate. If they are not accurate, the Corporations Act 2001 (Cth) (Corporations Act) and the Australian Securities and Investments Commission Act 2011 (ASIC Act) have general prohibitions against misleading and deceptive conduct in relation to financial products or financial services. Breaching these prohibitions can result in large penalties, infringement notices and proceedings. 

Action against Mercer

ASIC alleges that Mercer made false and misleading statements in relation to the investment options offered by Mercer Super Trust and engaged in conduct that could mislead the public. Mercer Super Trust offered a 'Sustainable Plus' investment option for members who are 'deeply committed to sustainability'. Mercer made representations that this Sustainable Plus investment option would exclude investment in companies involved in alcohol production, gambling and in carbon intensive fossil fuels.

However, ASIC investigation found that the Sustainable Plus investment option was misleading as it had investments in:

• fifteen companies involved in the extraction or sale of carbon extensive fossil fuels.

• fifteen companies involved in alcohol products.

• nineteen companies involved in gambling. 

ASIC is seeking declarations and pecuniary penalties from the Federal Court and also seeks injunctions preventing Mercer from continuing to make any of the alleged misleading statements on its website. 

ASIC greenwashing crackdown 

This civil penalty action against Mercer follows ASIC's other recent activities in this space. Since October 2022, ASIC has issued over $140,000 in infringement notices for alleged greenwashing to at least four companies including Vanguard Investments Australia, Diversa Trustees Limited, and Black Mountain Energy. ASIC's allegations of greenwashing have been associated with various forms of communication, including statements on websites, product disclosure statements, and statements to the ASX.

Directors should be aware that in certain circumstances they could be personally pursued for greenwashing. ASIC has argued that refraining from participation in greenwashing is a part of a director's duty.

ASIC has published a list of questions to consider when a corporation is promoting or offering sustainability-related financial products in order to avoid misleading or deceptive greenwashing practices. These are:

• Does the financial product label reflect the substance of the product itself?

• Has there been a use of vague terminology without providing clarifying disclosures?

• Are the headline claims potentially misleading?

• Have you explained how the sustainability-related factors are integrated into investment decisions and stewardship activities?

• Have you adequately disclosed your sustainability-related investment screening criteria?

• Do you have reasonable grounds for a stated sustainability target and explained how and when you will meet your target?

• Is it easy for investors to locate and access relevant information? 

• Have you explained how you use metric related to sustainability?

• Do you have any influence over the benchmark index for your sustainability-related product? If you do, is your level of influence accurately described?

For more ASIC specific guidance on avoiding greenwashing see ASIC Information Sheet 271.

Environmental Defenders Office is targeting resource and energy companies

The EDO has been targeting resource and energy companies for alleged greenwashing. As part of this they have submitted formal complaints and legal letters to the ACCC regarding alleged greenwashing conduct undertaken by Shell, Australian Gas Network, Ampol and Glencore.

The EDO have also filed a Federal Court case on behalf of the Australasian Centre for Corporate Responsibility against Santos alleging claims of 'clean energy' and net zero target constitute misleading and deceptive conduct.

The ACCC is also taking action

Not only has ASIC cracked down on greenwashing but the consumer watchdog, the ACCC, has also prioritised enforcement against greenwashing in recent years.

For 2022-23, consumer and fair trading issues in relation to environmental claims and sustainability was also listed as one of ACCC's compliance and enforcement priorities. On 2 March 2023, the ACCC announced they will be investigating several companies for potential 'greenwashing' after an internet sweep revealed that over 50% of the businesses evaluated made vague or unclear assertions about their eco-friendly or sustainable practices. Out of the 247 businesses investigated during the search, 57% were flagged for making concerning claims about their environmental credentials. ACCC will be requiring businesses with broad claims about their practices like 'green' or 'environmentally friendly' to substantiate these claims when asked.

The Australian Consumer Law has broad prohibitions on misleading and deceptive conduct and false or misleading representations. Breaching these prohibitions can result in penalties, infringement notices and proceedings.

With ASIC, the EDO and ACCC all targeting greenwashing as an enforcement priority, we recommend that companies take particular care to ensure that any representations they make to investors or consumers about the sustainability of their practices are accurate and can be substantiated. With further enforcement action likely to follow, we suggest that companies continue to watch this space.