When it comes to the Environmental, Social and Governance (ESG) policies of large firms, the spotlight is being turned toward greenwashing, and the risk of active or inadvertent false or exaggerated disclosures.
We know that one of the benefits of producing Environmental, Social and Governance (ESG) reports for companies is the ability to convey to their stakeholders what actions they are taking to ameliorate their impact in these areas. Inevitably these reports underpin any claims made in marketing material, used to differentiate a product or service as being a more “sustainable” option in the marketplace. But what happens when these claims go too far? Or are found to be unsupported by evidence? A recent spate of legal and consumer watchdog activity around potential “greenwashing” has highlighted the importance of only making claims which are based on sufficient and rigorous data.
In early September, the Environmental Defenders Office (EDO) lodged a legal complaint with the Australian Competition and Consumer Commission and Australian Securities and Investments Commission (ASIC) against the Glencore Mining Group, pertaining to misleading claims over their climate impact. Glencore publicly claim to have decarbonisation plans in place, and to be ‘laying the foundations for a low-carbon future’; however the group continue to expand their coal production capacity and no evidence could be found by lawyers to support the decarbonisation claims. The EDO will argue that the contrast between low-carbon rhetoric used in marketing and the increasing coal production amounts to harmful greenwashing.
Similarly, fuel company Ampol are under legal scrutiny over their claims of being able to provide “carbon-neutral” fuel to businesses. The claim is based on offsetting emissions with cheap international carbon credits, which are extremely difficult to verify and cannot be proven to be effective in reducing all the emissions from the fuel. The complaint has been made to the Australian Ad Standards authority and argues that Ampols’ claims are in breach of Section 1 of the authorities Environmental Claims Code.
Most pertinent to ESG reporting is the case against gas giant Santos which has been playing out the federal court since August last year. Brought by the Australasian Centre for Corporate Responsibility, Santos were originally accused of using unfounded figures in their 2020 Annual Report and net zero emissions target strategy. The scope has recently been expanded to include their 2020 Investor Day Briefing and their 2021 Climate Change Report.
In addition to the federal court, the stock market is another place where accusations of unsubstantiated climate claims are playing out. ASIC has listed greenwashing, including ‘misleading statements relating to environmental, social and governance claims’ in Strategic Priority No. 2 of its Corporate Plan 2021-2025. ASIC recently received complaints from activist investment group Market Forces about Santos and statements that were made by their executives at their annual shareholder meeting in May. The statements pertained to how Santos’ plans for new oil and gas projects complied with the International Energy Agency’s net zero emissions by 2050 recommendations. ASIC have confirmed their receipt of the complaint but have yet to indicate how they’ll proceed. It is within their remit to bring legal proceedings, or suspend a director, depending on the nature of the infringement.
Interestingly, the increasing scepticism around Santos’ environmental claims have seen superannuation fund UniSuper face legal challenges from their own members, who perceive the continued inclusion of Santos in the portfolio as a potential failure of the fund managers to properly manage risk.
All the instances discussed reinforce the need to substantiate whatever claims are made in marketing and ESG reporting material with rigorous and defendable data and analysis. This is even more important when we see how the perceived veracity of climate claims by companies in one sector, i.e., Resources, can impact another, i.e. finance.
To find out more about how we can support your organisation’s sustainability reporting and planning, contact us.
Better Planning. Better Planet.