Over the last two years, Australian regulators ASIC and the ACCC have both launched respective greenwashing cases.
One case by ASIC against superannuation fund Mercer ended in August last month with the Federal Court ordering the financial business to pay an $11.3 million penalty after it admitted to making misleading statements about the sustainable nature and characteristics of some of its superannuation investment options.
Earlier this year, the financial regulator won its first greenwashing civil penalty in March when the Federal Court found Vanguard Investments Australia contravened the law by making misleading claims about certain environmental, social and governance (ESG) exclusionary screens applied to investments in a Vanguard index fund. A penalty was not set at the time, and no new information has been provided since.
In fact, in the 15 months to June 30 this year, ASIC has made 47 regulatory interventions to address greenwashing misconduct.
Meanwhile, the ACCC instituted its first-ever greenwashing proceedings in the Federal Court against Clorox Australia Pty Ltd, the manufacturer of GLAD-branded kitchen and garbage bags, for allegedly making false or misleading representations that certain kitchen and garbage bags were partly made of recycled ‘ocean plastic’, in breach of the Australian Consumer Law.
According to two partners at Australian law firm Mills Oakley, this greenwashing litigation so far is just the beginning, with government-mandated climate reporting set to transform all industries across Australia - including the fashion industry.
“It usually takes a couple of these sorts of cases before it gets through,” Mills Oakley partner Kathryn Edghill says.
“If you look at the Mercer case, you might think, Oh, that applies to superannuation funds, but the actual principles in it are applicable across all industries. Don't make claims you can't substantiate, don't make claims that need an explanation without appropriate proximate and prominent disclaimers.
“All of those things are fairly simple messages, which cost $11.3 million for Mercer.”
Edghill - who specialises in competition, regulatory and risk - says she expects more greenwashing cases to hit Australian courts in the months and years ahead.
“What you see in Mercer is really the universal requirement that's going to be: if you want to make a claim about the environmental nature of your products, or whether they assist the environment or are less damaging to the environment, you're going to have to be able to substantiate it. That's principle number one,” Edghill says.
“And if you're making those claims, they need some form of explanation. So, for instance, ‘This will make your environment cleaner’... You need to say, cleaner than what. You need to have an explanation.
“What happened with Mercer was they didn't put enough of a disclaimer about what they said. They didn't adequately explain it.”
Edghill says the greenwashing crackdown by both regulators also impacts businesses of all sizes.
“Often the regulators go for the bigger players, but it's often some of the smaller players who need to gain a competitive advantage, and who are often more willing to be a little bit less loose with their substantiation.
“Although Mercer is reasonably large, the law applies to everybody.”
Fellow Mills Oakley partner John Moutsopoulos - who covers the financial sector - says the crackdown on greenwashing by both regulators also comes at a major transition for the Australian economy, where it will soon be mandatory for businesses across all sectors to share their sustainability credentials.
This mandatory climate reporting will be phased in over three years, starting with big entities meeting select criteria such as hitting $500 million or more in revenue, $1 billion in assets, or 500 employees or more.
“Globally, the ISSB [International Sustainability Standards Board] which was created as part of IFRS [International Financial Reporting Standards], has produced a global standard for climate reporting to create a global baseline for climate reports,” Moutsopoulos says. “Australia is implementing that into our local law, and the law will commence on the first of January 2025.
“For the first time, they will be required by law to make annual climate reports, which include prescribed content, and it ultimately will be audited. But initially, it's a ramp-up on the auditing.”
In Australia, many businesses are already sharing sustainability reports voluntarily. According to Moutsopoulos, the quality of those voluntary reports made so far - generally speaking - “has been pretty low.”
“I suspect they'll stop making these voluntary climate reports because they're now going to have to do an annual one to a much higher standard. That's the direction we’re travelling.”
Outside of that, Moutsopoulos raises another concern over businesses that are making public commitments to hit net zero by 2050, with this being noted even across Australian fashion.
“They're doing that not because the law is forcing them to - at the moment - they're doing that because their stakeholders are forcing them, in a sense, or because they just feel ‘we want that ambition for our business, and we know that's going to resonate well with our stakeholders.’
“So now you've got this environment where there are these public commitments, and that's produced nice, warm, fuzzy feelings. But, those sorts of net zero pledges can also give rise to greenwashing risk.”
Moutsopoulos adds that the next arm of mandatory disclosure reporting in the future will likely cover natural capital, or nature loss, and potentially even diversity, equity and inclusion.
Overall, he says the push towards tackling greenwashing is part of a broader theme that spans the globe. And it’s not going away.
“It's going to be with us for a very long time, and it's because the world has changed,” Moutsopoulos says.
“The entire economy, certainly Australia and globally, is transitioning to a lower carbon economy, and we're trying to change the way we do business - circular economy, recycling, green this, green that.
“And so investors and clients and customers are kind of getting it, and they want to do their bit. They do that by making buying choices.
“And the regulators don't want investors and customers to lose trust, and that's why they're stomping on greenwashing, because they've got to allow the economy to successfully transition, and they can't allow businesses to greenwash.
“It's a big deal, and that is the bottom line.”
Edghill says there is help for businesses that are struggling to navigate the disclosure of their green credentials, including a list of eight guidelines shared by the ACCC on its website.
“The first one is being completely honest and accurate, which shouldn't be a problem for a lot of people,” she says. “The second one is making sure you've got the evidence to back it up, the substantiation, and that includes not leaving out things that are really important.
“Put the qualifications and explanations there. Don't just make very broad claims like, We're the greenest in the business’. Really be certain about what you're studying. Make the language clear, don't try to trick people.”