On 27 February 2023, the Australian Securities and Investments Commission (ASIC) commenced its first Court action against an Australian entity for alleged greenwashing.1
This case serves as a warning to corporations of the legal risks associated with failing to appropriately report on the sustainability of their products and operations, particularly in circumstances where ASIC has announced that it will be targeting greenwashing practises in Australia this year.2
This case is reflective of a broader national and international movement to address the issue of corporate greenwashing, amid an increasingly environmentally and socially conscious consumer base.
There is no set definition of what conduct will amount to ‘greenwashing’.
Relevantly, ASIC considers that greenwashing is:
“The practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical”,
and that
“…it distorts relevant information that a current or prospective investor might require in order to make informed investments decisions. It can erode investor confidence in the market for sustainability-related products and poses a threat to a fair and efficient financial system”.
This definition is not binding but provides useful guidance for the conduct which ASIC will look for when assessing shareholder communications and corporate governance.
ASIC commenced civil penalty proceedings in the Federal Court of Australia earlier this year against Mercer Superannuation (Australia) Limited (Mercer) for allegedly making misleading statements about the sustainable nature of seven of its ‘Sustainable Plus’ superannuation investments.
The ‘Sustainable Plus’ investments were marketed as suitable for customers who are ‘deeply committed to sustainability’, as these were said to exclude investments in carbon intensive fossil fuels and companies involved in alcohol production and gambling.3
By the proceedings, ASIC alleges that its investigations show that the ‘Sustainable Plus’ product included investments in corporations associated with carbon intensive fossil fuels, alcohol production and gambling, which are inconsistent with Mercer’s sustainability representations.
ASIC alleges that the statements made by Mercer are likely to mislead or deceive consumers. It seeks various orders against Mercer including (amongst other things) declarations and pecuniary penalties. Importantly, it is also seeking relief to restrain or prevent Mercer from making the statements and requiring it to publicise any adverse findings ultimately made against it.
This case is the first time ASIC has brought proceedings against a company for alleged greenwashing. It is also the first time it has exercised its enhanced powers to commence proceedings against superannuation trustees since the Financial Services Royal Commission (and the reforms which followed in 2020, including potential repercussions for misleading or deceptive conduct in relation to financial products and services).
ASIC has now shown a willingness to seek relief or remedies which have longer-term consequences for companies than simply a fine.
Previously, ASIC has merely sought to issue infringement notices against corporations for contravening conduct. These notices, whilst financially painful, often resulted in windfalls to companies that may have been guilty of greenwashing behaviour in excess of the value of the infringement notice (e.g., where the conduct resulted in substantial funding being procured). The company would pay the fine then carry on.
The Mercer proceedings, however, mark a shift in ASIC’s strategic approach to this conduct: it is the first time in which ASIC has commenced substantive litigation against a company for alleged greenwashing. The result being that the alleged contravener now faces not only the pecuniary penalty which may be associated with an adverse court order but also the reputational risk which public and protracted litigation will have.
ASIC’s decision to prosecute such conduct in Court should therefore act as a strong warning to corporations to ensure the representations which they make about their products and operations are accurate.
These proceedings clearly demonstrate ASIC’s intention to strongly respond to the practice of greenwashing in Australia. It also demonstrates ASIC’s willingness to seek orders requiring companies to publicly address their conduct (such as disclosure to shareholders) in a way which will likely have significant reputational consequences.
If you require advice in relation to possible greenwashing risks or would simply like to discuss the content of this note, please contact Millie Richmond-Scott or Mihali Palassis.
1Australian Securities and Investments Commission, ‘ASIC launches first Court proceedings alleging greenwashing’ (Media Release, 23-043MR, 28 February 2023) link.
