One of the sessions at the 2023 Australasian Investor Relations Association (AIRA) annual conference looked at defining and avoiding greenwashing accusations.
Given investors’ increased focus on ESG-related disclosures, the evolution of regulatory frameworks and standards and an increase in activism, the event brought together leading IROs, sustainability and governance professionals to offer attendees best practice advice.
The session offered insights on how to maintain authenticity of disclosures by establishing clear and measurable sustainability targets and how to manage reputational risks as regulatory scrutiny increases at a fast pace, with a focus on Australian firms.
Opening the session, moderator Alicia Burgmann, head of ESG at Wisetech Global, noted that while there haven’t been any changes in ESG laws in the region, their enforcement has changed. She pointed out that the country’s regulatory body, the Australian Competition & Consumer Commission (ACCC) and the Australian Securities and Investments Commission (ASIC) have named greenwashing ‘as an enforcement priority for 2023 and beyond’.
‘We’re seeing the results of this focus, with ASIC releasing its greenwashing interventions report earlier this month,’ Burgmann said. ‘There are 23 corrective disclosure outcomes, 11 infringement notices and one civil proceeding commencing in the first three quarters of this financial year.’
She added that on the consumer side, the ACCC identified 57 percent of businesses it reviewed as ‘making concerning claims’.
Headline maker
Looking at changes in the ESG regulatory landscape that have potentially led to an acute awareness of greenwashing, Sarah Barker, partner and head of climate and sustainability risk governance at MinterEllison, said: ‘Greenwashing seems to be in the papers every second day now. Why? The law has not changed. What [have] changed [are] the facts and the relationship between sustainability and environmental issues and financial risks and opportunities.
Barker argued that as these issues have become more material, financial regulators are having to focus a lot more on how businesses address them. ‘Strategic litigants are looking at environmental claims as a lever to achieve the aims they perceive haven’t been adequately pursued under specific environmental legislation,’ she explained.
ASX priorities for listed entities
Daniel Moran, chief compliance officer at the Australian Securities Exchange (ASX), highlighted what the main areas of focus are for the exchange. ‘One of the things we are typically looking at is misleading and deceptive disclosures and we interact with ASIC on those,’ he said.
Moran noted that in line with ASIC indicators when it comes to listed entities, the ASX is paying close attention to net-zero claims, imprecise language around clean and green strategies and related disclosures. ‘Where we spend a little bit more time and focus is where you see companies associating themselves with advances in clean energy, where there’s not a strong connection between [claims and facts] when you dig into it,’ he added.
In this regard, Moran noted that during Covid-19 and its aftermath, an increased investor focus on things such as renewable energy has led companies to force connections between their ESG practices and opportunities in renewable energy, ‘which don’t necessarily stack up’.
The role of data
One obvious way for businesses to avoid greenwashing accusations is to back up their ESG-related claims with strong data, as that provides objective evidence.
‘Data has a very significant role to play in acting as a mitigant to greenwashing and avoiding it,’ says Kate Bromley, executive director of sustainable finance at FairSupply. ‘It doesn’t mean just putting any numbers up, [but rather] focusing on having data that is high quality that has been thoroughly interrogated.’
Bromley noted, however, that there are still limitations in capturing sustainability data and therefore there isn’t an expectation for businesses to disclose perfect data, but instead to be open to any limitations associated with it.
‘If there are any gaps or challenges or if there’s any modeling that has occurred to present a dataset, I think including that in [the] discussion is a key way to be very open around what the data is saying and the story it’s portraying,’ she said.
When delivering data around their sustainability performance to investors, Bromley suggested companies need to think about balancing out the story the data is delivering with the one the company wants to convey, as sometimes the latter can be more positive.
‘There’s also another aspect to data, which is getting sustainability data to the point that we have other datasets within a company that we use, to the point of it being financial grade and high quality,’ Bromley added. ‘That process is around data management and the strength and resources invested in being able to bring together disparate datasets to tell that story: [this] is just as important as the data itself.’
Low bar
Asked to comment on the reasons that have led to a renewed focus on greenwashing, Barker said it is ‘reflective of the increased magnitude of common sustainability-related issues [considered] as a financial risk’.
‘From a legal perspective, I think we also need to combine that with a recognition of just how friendly our securities and misleading disclosure laws are for plaintiffs,’ she added. ‘[In Australia], you don’t need to establish intent to mislead or deceive, you don’t need to establish that anyone has suffered lawful damage. It’s all done hypothetically. [Therefore], we’re seeing a tsunami of strategic litigation in Australia on greenwashing.’
Moran felt the reason for an increased focus on greenwashing was purely financial. ‘The more that investors are attracted to putting money into investments they regard as sustainable, the more incentive people who are offering investments have to characterize them as sustainable,’ he explained.
Serious consequences
Panelists highlighted an increased number of questions and penalties as top risks companies face when knowingly or unknowingly engaging in greenwashing.
From an ASX perspective, Moran said: ‘We’ll have a closer look at you. Typically [what that means is] us asking you all sorts of embarrassing questions, with the questions and the answers being released on the market announcements platform.’
Barker added that where a greenwashing claim is filed against a company, the stock could also drop, regardless of the claim outcome.
‘[Companies] need to look at this not just as a compliance issue – even though, of course, it’s a hard regulatory compliance issue – but also a lot more laterally, in terms of where the risks are coming from and how we solve those broader stakeholder risks as well as the regulatory risks.’
