Greenwashing: Don’t get taken to the cleaners

As the world transitions to a cleaner energy future, many organisations are jostling to be part of the journey. High-profile companies, across a range of industries, have made public pledges to reduce their emissions and align with a net-zero future.

Of course, making a pledge is not the same as meeting a pledge, and this can give rise to greenwashing: the act of misrepresenting your organisation as more environmentally conscious than it really is.  

So what does the law say about greenwashing? And what does it mean for the energy transition?

The rise of climate litigation

Greenwashing is not a new concept. The Australian Competition and Consumer Commission has published a guide that deals with how consumer law applies to green marketing. The scenarios it considers predominantly relate to claims about specific products (“our bags are environmentally friendly: they are biodegradable!” or “this washing machine uses 75 per cent less water!”).

What is less touched on is the recent phenomenon of companies making overarching climate pledges that relate to whole-of-business operations. Companies like Qantas, BHP, Shell, and Rio Tinto have all committed to net-zero emissions by 2050, while others like Coca Cola and Amazon are pledging carbon neutrality by 2040. These examples are only a small snapshot of the growing appetite among companies to have net-zero ambitions. But as this appetite grows, so does the scepticism.

In recent years, climate advocacy groups have sought to leverage the legal system to supplement their public pressure campaigns on climate action. The types of litigation vary, though those that capture the most media attention usually revolve around:

1. Action against a government for inadequate climate change policies.

Earlier this year, Germany’s equivalent of the High Court ruled that their government’s current climate change laws violated human rights because they did not focus enough on short-term targets and therefore placed an unreasonable burden on future generations.

2. Action against a private corporation for failing to meet their director duties.

This is usually for an act of omission: not disclosing climate-related risks or not taking positive action to address climate-related risks. Momentum on this front is growing with the Australian Prudential Regulation Authority recently consulting on a draft prudential guidance on climate risk, while the Australian Securities and Investments Commission has endorsed the view that director duties extend to climate change.

3. Action against a private corporation for misleading or deceptive conduct.

Only last week, it was reported that a climate advocacy group had taken energy giant Santos to court for alleged misleading conduct by claiming it produces clean energy and has a pathway to reach net-zero emissions.

The unique feature of the Santos case is that the plaintiff is relying on consumer rather than corporation law to prosecute the greenwashing allegation.

State of the law

Given climate litigation in Australia is still in its infancy, how future courts might respond to such actions remains open to interpretation. There has, nonetheless, been considerable legal commentary about likely interpretations, none more so than Minter Ellison’s Memorandum of Opinion (commonly known as the “Hutley Opinion”). It considers how provisions relating to misleading or deceptive conduct, like s18 of the Australian Consumer Law, might apply to corporate pledges to reduce emissions and/or become net-zero.

Pledges like this are about a future matter, so the key question for the courts is whether the company has “reasonable grounds” to support the representation at the time it is made. What should a company do to show this? According to the Memorandum of Opinion, the company should have:

• an internally integrated decarbonisation strategy (e.g. how the pledge aligns with the company’s financial position, investments, prospects, etc.);
• identify when (including setting interim/stepping stone milestones) and how the company will reduce its emissions; and,
• what assumptions underpin this (companies should consider seeking external assurance).

Companies should be wary of relying on “unknown contingencies”, such as the emergence of new technologies or other actors in the supply chain reducing their emissions over time. This is a grey area, given that almost all modelling (whether it be from companies or authoritative bodies like the Australian Energy Market Operator and the International Energy Agency) relies on the emergence of some new technologies, whether that be hydrogen, carbon capture, or more sophisticated battery storage, to drive emissions reductions. Presumably long-term pledges that rely partly on the eventual decarbonisation of the electricity sector would be taken as “reasonable grounds”, given how widely assumed this is.

The second question courts must consider is one of semantics, but nonetheless important in establishing whether a pledge represents “greenwashing” and therefore misleading. Companies can describe their pledges, for example a net-zero by 2050 pledge, in various ways: it can be a “commitment”, an “ambition”, or even an “aspiration”. It can also be company-specific (e.g. Company X pledges to be net-zero by 2050) or general (e.g. Company X supports the intent of the Paris Agreement to achieve net-zero emissions by 2050). Courts will ask themselves how a reasonable person of the target audience would interpret these statements. While this appears sensible enough, it will be intriguing to see how the consumer law bridges the gap between a company’s representation and how media outlets report that representation. Only last month, for example, the Australian Energy Market Operator’s announcement to make the grid technically capable of supporting moments of 100 per cent renewable generation by 2025 was sensationalised as “100 per cent renewables by 2025: Grid operator pushes clean energy revolution”. This propensity for misinterpretation and over excitement from some quarters when it comes to climate pledges can make it difficult for companies to communicate the drier elements of their commitments.

How might companies respond?

While alleged greenwashing often attracts considerable media attention, the long-term impacts of successful litigation are not yet clear. Those who initiate climate litigation are hopeful it will not only punish companies that mislead but will also bring about positive change in corporate behaviour – pledges made will be genuine and realised. Of course, aggressive climate litigation may prove counterproductive if it spooks companies out of making any pledges.

Equally counter-productively, some companies might choose to remain silent if they realise their genuine commitments become unattainable due to political or economic changes. Those companies that take the route of inaction or silence should be careful though: such omissions can breach a director’s duties for either failing to act or not remedying what is now a misrepresentation.

One area to watch in this space is the Federal Government’s Corporate Emissions Reduction Transparency scheme. This scheme is designed to track the progress of corporate climate pledges and will be overseen by the Clean Energy Regulator. While it is only voluntary, companies under the scheme are expected to report their net annual emissions, progress towards emissions target, and amount of carbon credits used. It should provide a good indicator of how a company is progressing.

If one thing is clear, climate litigation is on the rise and companies should be cognisant of this.

Rhys Thomas has a Bachelor of Law with Distinction from Griffith University