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International arbitration report
In this edition, we focused on the Shanghai International Economic and Trade Arbitration Commission’s (SHIAC) new arbitration rules, which take effect January 1, 2024.
Greenwashing: ASIC reports on greenwashing interventions 2023 - 2024
Author:
Australia | Publication | 8月 2024
This article was co-authored with Rachael Lee.
The Australian Securities and Investments Commission (ASIC) has just released its report into greenwashing interventions for the period 2023 – 2024 (Report). ASIC has made clear that greenwashing is, and will continue to be, an enforcement priority. The Report reveals that ASIC is of the view that there is room for improvement in relation to the governance and quality of sustainability-related disclosures.
Since 2022, ASIC has undertaken extensive surveillance activities to identify potential greenwashing misconduct and has made clear that it will continue to do so. ASIC has also been proactive in using its enforcement powers in relation to greenwashing. Since 2023, three civil penalty proceedings have been commenced against funds, with ASIC succeeding on liability in all three greenwashing proceedings, and a penalty of $11.3 million has been awarded against one fund so far.
The Federal Court has also made clear that it considers greenwashing contraventions to be serious, specifically in relation to harm to consumer confidence in ESG claims and the conferral of unfair competitive advantages in the market to those who make false claims. The Court has cautioned that “The outcome of enforcement proceedings…should send a clear signal to AFSL holders and other market participants to ensure transparency and accuracy when making any ESG claims, and to exercise diligence in adhering to such claims”.
Despite its high-profile proceedings relating to funds, ASIC’s intervention on greenwashing has involved varied sectors including corporations, managed funds, superannuation funds and the wholesale green bond market and sustainability linked-loans. The Report refers to intervention with a chemicals company, mining and metals companies, energy companies, superannuation trustees and responsible entities of ESG funds.
Beyond formal court proceedings, ASIC’s Report records that it has taken extensive enforcement action through the issuance of infringement notices. Since October 2022, ASIC has issued 19 infringement notices concerning greenwashing, of which 8 were issued between April 2023 and June 2024. This represents more than 50% of all infringement notices the regulator has issued since October 2022. Further, between April 2023 and June 2024, ASIC has achieved 37 corrective disclosure outcomes in relation to greenwashing, for example, replacing references to “zero carbon” with “net zero carbon” or discontinuing the improper use of “carbon neutral” references in marketing materials.
In the recent 2024-25 Federal Budget, the Government has allocated additional funding to ASIC to investigate and take enforcement action against greenwashing and other sustainability-related financial misconduct.1 The introduction of mandatory climate-related disclosures, expected to commence in 2025, will only increase the risks and scrutiny of greenwashing by the regulator as many businesses will now be required to make public statements about their sustainability credentials. The Government is also partnering with the Australian Sustainable Finance Institute to develop an Australian sustainable finance taxonomy and is proposing to legislate a sustainable investment product labelling regime.
ASIC has been proactive in communicating to the market its role in supervision and enforcement concerning these mandatory disclosures. It has made clear a desire for active engagement with industry to facilitate high quality climate reporting by large Australian business and financial institutions.
Content
Conduct of concern
The Report outlines that through its greenwashing interventions ASIC has identified four broad areas of concern:
- underlying investments that are inconsistent with disclosed ESG investment screens and investment policies;
- sustainability-related claims made without reasonable grounds;
- insufficient disclosure on the scope of ESG investment screens and investment methodologies; and
- sustainability-related claims made without sufficient detail.
ASIC’s Report includes a summary of the surveillance work it has undertaken, its key recommendations, and best practice for avoiding greenwashing. The Report states that ASIC expects ASX listed corporations, asset managers and entities operating in the managed funds or superannuation sector to carefully consider the findings in the Report and ASIC’s recommendations.
ASIC’s recommendations include:
- Entities making voluntary climate-related disclosures regarding metrics or targets should have regard to the Australian Sustainability Reporting Standards (ASRS), once published;
- Ensure that independent reviews to verify investments by managers or sub-managers align with the claims made about the funds’ sustainable strategies;
- Consider whether existing risk and compliance frameworks adequately manage the specific risk and compliance challenges arising from sustainability strategies; and
- Ensure clear and sufficiently detailed explanations of investment screens or exclusions as well as any sustainability-linked intended investments and projects.
Where to next?
We expect liability risks to broaden when the proposed mandatory disclosure obligations are introduced.2 These changes will require all companies that meet prescribed size thresholds or have existing emissions reporting obligations to make disclosures by way of an annual sustainability report. A three-year litigation hold for private proceedings is expected but will not prevent ASIC from commencing proceedings, although ASIC has indicated it will take a proportionate approach to enforcement.
ASIC expects boards to engage directly on sustainability claims, including companies’ aspirational statements, targets, active stewardship commitments or investment descriptions.3 ASIC has indicated that future proceedings may move beyond misleading or deceptive conduct to target licence obligations, and director and officer duties.4
Boards must take steps now to ensure they have the proper infrastructure and systems in place to ensure they are in a position to report under the mandatory reporting regime. ASIC’s success in its greenwashing proceedings also highlights the critical importance of proper internal marketing controls and risk management policies for companies who expect to make claims about their ESG credentials.
This is an area rife for continuing regulatory and third-party scrutiny, and if the proceedings that have been commenced and won by both ASIC and ACCC are any example, a decision to make an environmental or sustainability claim must be properly and thoroughly vetted before being published.
Practical mitigation strategies aligned with ASIC’s recommendations
If your company makes representations concerning sustainability, climate or governance, whether through marketing material (websites, social media or direct marketing) or financial disclosure documents, you should consider the following:
- Do you have mandatory policies and procedures, such as marketing checklists, in place to review new and existing external representations concerning sustainability, climate or governance to ensure that they are accurate, can be objectively verified and are sufficiently qualified?
- Are your policies and procedures regularly reviewed and independently tested to ensure appropriate oversight and supervision of the making of these types of claims, and to ensure they are up to date with the latest legal developments?
- Are the individuals responsible for implementation of the policy appropriately trained on the risks associated with greenwashing and the measures to mitigate risk (this ought to include adequate training for the board)?
- If you will be required to report under the incoming mandatory climate-related disclosure laws, do you have systems and processes in place to ensure that you will be able to report accurately and with the degree of detail required?
- Do you have processes for ensuring that representations provided to you by third parties are appropriately vetted for accuracy?
To read more about Australia’s oncoming climate-related financial disclosure regime, please see: A legal primer to preparing for Australia’s climate-related financial disclosure regime | Global law firm | Norton Rose Fulbright
Footnotes
2
Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024.
Partner | National Pro Bono Team Leader | Chair ESG Group
Email
chris.owen@nortonrosefulbright.com
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