ASIC has scored a hat-trick of wins in the Federal Court for cases related to greenwashing allegations in late 2023 and 2024. In this article, we provide an update on ASIC’s court actions and greenwashing disputes globally, and the key takeaways for businesses.

For more information on regulatory action against greenwashing, see our previous article on ASIC’s actions here, and our discussion of the ACCC’s environmental and sustainability focus here.

Greenwashing firmly in ASIC’s crosshairs

ASIC first announced that greenwashing would become a regulatory focus in 2023, amid concerns that greenwashing was preventing consumers from making informed decisions in a rapidly growing marketplace for ESG-branded products. And, that greenwashing would undermine investor confidence in ESG products and threaten consumer confidence in a fair and efficient financial system. Greenwashing stayed firmly within ASIC’s focus for 2024, when it was announced as a continuing enforcement priority for the regulator.

On 2 May 2024, ASIC Chair Joe Longo presented a keynote speech at the Responsible Investment Association Australia Conference, with key takeaways being that:

• The underlying principles of accuracy and transparency are not a new responsibility for businesses; and
• ASIC’s enforcement actions are founded on well-established obligations prohibiting businesses from engaging in misleading and deceptive conduct.

By way of refresher, ASIC defines greenwashing as ‘the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical.’

Other takeaways from Mr Longo’s speech include that:

• Compliance with the ASIC reporting regime will build trust with investors and consumers, which greenwashing tends to erode;
• ASIC’s focus is on entities that it considers to be ‘carelessly’ giving inaccurate or misleading statements. ESG claims must have a sound basis and be demonstrably supported by business plans and investments that substantiate those aims. In ASIC’s words, it wants to know the ‘what, how, why and when – the facts behind the marketing’; and
• A key question for businesses to ask themselves (as a Court will) is: what would the ordinary and reasonable person be left thinking after they read what has been disclosed?

Mr Longo noted that ‘greenhushing’ which he defined as ‘omitting material sustainability-related information’, could also be considered misleading or deceptive, depending on the nature and significance of the omission.

As of 2 May 2024, ASIC had issued 17 infringement notices for misleading and deceptive sustainability-related claims, totalling more than $230,000. ASIC has been targeting the following types of offending:

• Net zero statements and targets, that were either made without a reasonable basis or that were factually incorrect;
• The use of terms such as ‘carbon neutral’, ‘clean’ or ‘green’, that were not founded on reasonable grounds;
• The overstatement or inconsistent application of sustainability-related investment screens; and
• The use of inaccurate labelling or vague terms in sustainability-related funds.

Recently, ASIC has extended its focus to the governance around the sustainability representations that are made to investors. This has included ensuring that responsible entities deliver on the representations they make about their funds’ sustainable investment strategies and objectives.

Recent success in court

Vanguard

On 28 March 2024, ASIC won its first greenwashing civil penalty action against Vanguard Investments Australia. The Federal Court found that Vanguard had made numerous false or misleading representations about the ESG exclusionary screens applied to its ‘Vanguard Ethically Conscious Global Aggregate Bond Index Fund’ (Index).

These statements, published in product disclosure statements, media releases and on the website, were to the effect that the Index excluded companies with significant business activities in a range of industries, including those involving fossil fuels. However, it has since been admitted by Vanguard that a significant proportion of securities in the Index were from issuers that were not researched or screened against applicable ESG criteria.

Mercer

As discussed in our previous article, ASIC commenced a civil penalty proceeding against Mercer Superannuation in February 2023, which related to a category of superannuation investment options offered by Mercer, referred to as the ‘Sustainable Plus’ investment options. Since then, ASIC has accepted a $11.3 million settlement offer, but this remains subject to final court approval.

Active Super

On 5 June 2024, ASIC walked away with its third straight win when it took LGSS, trading as Active Super, to court for representing that it was a “responsible investment leader” despite having, from February 2021 to June 2023, 28 holdings that exposed members to securities in tobacco, oil tar sands, gambling investments and Russian companies. Justice O’Callaghan of the Federal Court found:

“If such a consumer was told, as they were told, that there was “No way” that LGSS would invest in tobacco or gambling, he or she would not search around for some investment policy that might qualify such statements.”

Fertoz

On 15 November 2023, Fertoz, an entity specialising in fertiliser mining, manufacturing and supply, made statements in a presentation published on the ASX regarding its 'Reforestation Project' in the Philippines. These statements were that it would obtain an offtake partner or receive funding for the project by the end of 2023, as well as begin planting the initial hectares in the respective area of the project in Quarter 4 of 2023.

ASIC alleged that the statements were false and misleading as, among other things, Fertoz had not secured any funding necessary for the progress of the Philippines Reforestation Program, and that Fertoz had not signed any letters of intent, non-disclosure agreements or engaged in advanced discussions with new offtake partners that were at the stage of reaching completion at the end of 2023. On 21 June 2024, Fertoz paid $37,560 to comply with two infringement notices issued by ASIC.

Global greenwashing action

Whilst our local regulator has focused on greenwashing within the financial services industry, companies in other sectors should be taking note. Allegations of greenwashing have been levied against some of the world’s largest companies in a range of sectors, recently making headlines around the world.

JBS Group

Brazilian agri-business JBS Group is being sued by New York attorney general, Letitia James. The legal complaint noted that the JBS Group has made sweeping representations to consumers about its commitment to reducing its greenhouse gas emissions, claiming that it would be ‘Net Zero by 2040’. However, as recently as September 2023, the CEO of the JBS Group admitted that the company did not have a mechanism to calculate all of its admissions.

ExxonMobil

ExxonMobil faces allegations of greenwashing for its marketing campaign on “thoughtful driving” which included a proposal to trap carbon dioxide at an oil refinery and petrochemical complex. However, investigations by openDemocracy have alleged that the project actually never left the planning phase, and had not received the necessary licence or government support.

Key takeaways for businesses

1. Sustainability-related claims must be founded on reasonable grounds, and they must be able to be demonstrably supported by business plans and investments that substantiate those aims;
2. ASIC will ask questions if statements are made in marketing and promotional campaigns, with little or no substance to back them up;
3. ASIC’s focus has remained firmly on greenwashing in the financial sector, however all companies should be ensuring that their ESG claims are truthful and accurate, and are not misleading to consumers.