Australia’s regulators have put businesses “on notice” about greenwashing after the country’s securities regulator issued its first ever fine, one of many recent signs of increased enforcement action by regulators Down Under.
Last week, ASX-listed Tlou Energy agreed to pay a total of A$53,280 ($34,340) to comply with four infringement notices issued by the Australian Securities & Investments Commission (ASIC) over allegations it made false or misleading sustainability-related statements to the local bourse in October 2021.
While this is the first ever fine for greenwashing ASIC has issued, local experts noted the country’s main regulators, ASIC plus the Australian Competition & Consumer Commission (ACCC) are increasingly probing allegations of greenwashing and expect the Tlou Energy case is just the tip of the iceberg.
“It’s a low-level enforcement tool that ASIC has used against Tlou Energy – an infringement notice, but it’s definitely an area to watch,” said Laura Hartley, partner at Addisons.
“The ACCC put out a list of priorities in February 2022 and the first priority on their list for the forthcoming year was greenwashing. Meanwhile, ASIC, which has been criticised in the past for not taking action, employed a former commissioner of the ACCC, Sarah Court, which is a sign that they are looking at enforcement action more seriously.”
“At the moment, the regulators are busy behind the scenes doing their homework, but I would expect to see more action in 2023. ASIC has put businesses on notice with this action taken against Tlou Energy.”
Neither ASIC nor the ACCC have been shy about advertising the fact they are increasingly targeting companies for greenwashing. As well as listing greenwashing as its number one enforcement priority earlier this year, the ACCC said last month that it was surveying the internet for companies making false claims about their environmental credentials.
The ACCC’s warning that its staff were busy looking at these false claims came from Gina Cass Gottlieb, chair of the ACCC, to a House of Representatives hearing. Similarly, ASIC’s deputy chair, Sarah Court, spoke at the hearing and said that several investigations were under way around greenwashing.
“We’re really focusing in on the misleading and deceptive conduct part of our consumer protection framework,” she said.
“So looking at statements like claims about wanting to achieve net-zero emissions by a particular time, claims about carbon neutrality, claims about an emissions reduction strategy, and…claims about investment exclusions or screening processes applicable to sustainability related financial products.”
According to lawyers, it is difficult to know what the outcome of these investigations will be as the regulators are keeping their cards close to their chest, although most expect more high-profile enforcement cases to materialise in 2023 and the penalties to be much stiffer.
“Australian law states the penalty for false and misleading conduct is the greater of A$10m, three times the value of the benefit obtained or up to 10% of annual turnover. The government actually passed legislation in the last week of October to increase these penalties fivefold to the greater of $50m, three times the value of the benefit or up to 30% of turnover, although it is awaiting royal assent,” said Hartley.
“The point is that you could have multiple contraventions of the law, which would mean that the penalties could run into the millions, which is far greater than what Tlou Energy paid.”
Market observers were divided on what the reasons were for Australia’s regulators placing greater focus on greenwashing.
“I think it’s because so many businesses are trying to use their credentials on sustainability and climate to either gain a competitive edge or because there’s an expectation among consumers and shareholders that they should be doing more of that,” said Edwina Kwan, partner at King & Wood Mallesons.
“And so with that comes greater scrutiny from the regulators because there wasn’t the sheer amount of companies making statements about emissions targets or sustainability previously.”
Some market observers also suggested that the regulators, in particular ASIC, had been slow to react to greenwashing and were responding to actions taken by regulators elsewhere, and even by third parties.
In March 2021, the US Securities and Exchange Commission’s enforcement division set up its climate and ESG taskforce to review disclosure among other things. The taskforce has been credited already with bringing a ground-breaking greenwashing action against BNY Mellon Investment Adviser, which saw it pay $1.5m to resolve charges it made material misstatements and omissions to investors concerning its ESG practices.
In Australia, the Australasian Centre for Corporate Responsibility (ACCR), a shareholder advocacy group, began legal proceedings in the Federal Court last year against Santos, the first court proceedings globally to challenge the veracity of a company’s net zero emissions target.
“It’s probably not correct to say that the regulators have been behind the curve on this issue as the ACCC has a history of looking at greenwashing allegations like the Volkswagen emissions case,” said Zoe Bush, a senior solicitor at the Environmental Defenders Office, which is advising the ACCR on the Santos case.
“However, I think the third-party claim may have put them under some pressure to act and it’s definitely become more of a topic of interest for them.”
What is to be done
Arguably the fact the regulators have yet to announce any high-profile enforcement cases has created a feeling of limbo for Australia’s companies.
In June, ASIC issued new greenwashing guidance to assist issuers with their existing regulatory obligations. While the information sheet focused on sustainability-related products issued by funds, ASIC said its principles applied to other entities like listed companies.
The guidance mainly consisted of an overview of the current law on greenwashing: prohibitions under the Corporations Act 2001 and the Australian Securities and Investments Commissions Act 2001 against misleading or deceptive conduct as well as a list of examples.
Lawyers advising companies on greenwashing said that they are generally advising clients to remain cautious until more clarity is provided in the form of enforcement action.
“The main advice is not to make claims you can’t substantiate, but that sounds more straightforward than it actually is. When we’re talking about technologies like carbon capture and storage, which are yet to be developed, it can get very technical,” said Hartley.
“A lot of the clients that I deal with, when they talk about the regulators whose scrutiny has them most worried, it’s the regulators in the EU, it’s regulators in the US and it’s regulators in Australia actually, particularly the ACCC.”