Greenwashing a corporate reputation down the drain.

There are very real legal and reputational risks for businesses which don’t back up their environmental, social and governance claims, writes Morry Bailes.

https://indaily.com.au/opinion/2022/06/23/greenwashing-a-corporate-reputation-down-the-drain/?utm_medium=email&utm_campaign=InDaily%20Lunchtime%20%2023%20June%202022&utm_content=InDaily%20Lunchtime%20%2023%20June%202022+CID_c88bc1a77ff08093bcef95f5f841d983&utm_source=EDM&utm_term=READ%20MORE

ESG is the new catch-cry of industry and in the board rooms of Australia. There is tut-tutting if environmental, social and governance considerations are not central to decision making, particularly in listed companies, but extending to all entities of public interest.

No one can argue with the need for strong governance, and good ethics are central to good business culture, although there are differing views about corporations who take social agendas well beyond their traditional businesses based on supposed ethical frameworks.

There is also consumer demand for ethical investing by, for instance, superannuation funds. As to matters environmental, some of the obligation is regulatory and founded in law, and some is to demonstrate good corporate citizenry. To be ‘green’ for the sake of the environment is perceived to be a good corporate look. Of the ASX 200 companies, Greenpeace now say over 50% have staked their reputations against fixed environmental outcomes by setting net zero or carbon neutral targets.

On environmental issues corporations are engaged and certainly talk the talk. The question is whether they are walking the walk.

A bit like claims to be organic or vegan in the food industry, there is sometimes doubt about the veracity of claims made by our corporates. Vegans become nervous about whether to their horror they may actually be eating or wearing animal after all. The use of ‘fake’ meat has raised claims of real meat making its way into substitutes. As to the use of the term ‘organic’ it can all become very confusing for the consumer when after all we never encounter non-organic vegetables, so what is it really all about?

Of the ASX 200 companies cited by Greenpeace as having set net zero or carbon neutral targets, only 16 had committed to 100% renewable electricity, begging the question of how the targets are to be met

Claims of good environmental intentions and environmental purity then are the next class of corporate representation that will be examined by regulatory authorities and consumers in Australia, against a backdrop of directors and executives feeling the ESG pressure to be upright corporate citizens. But are they too ‘faking’ it?

For a start, promises to be carbon neutral or net zero by a certain date abound in all walks of Australian life. We have just had an election probably decided because it was not good enough that the former government had a good environmental track record, when the perception was that it did not commit to carbon reduction targets that satisfied many of the voting public.

Whether or not a promise can or will be fulfilled seems to be irrelevant in the current debate. The mere giving of an undertaking seems to be enough. Governments are so short-lived and Australians so jaded by our political state of affairs, that we expect election promises to be broken. But to appear virtuous by declaring one’s commitment to be green goes a long way whether it is chimeric or real.

The law as it applies to business is a little less forgiving than we may be to our politicians. Whilst no politician can be prosecuted for making false and misleading statements, businesses, corporations and their office holders can. The Competition and Consumer Law is federal legislation that creates the Australian Consumer Law. That and the Australian Corporations Act operate to mean it is unlawful for a corporation or business to make statements in trade or commerce that are misleading or deceptive, or are likely to mislead or deceive.

An example was Coles’ advertising of its baked bread products. Coles packaged it up to read “Baked Today, Sold Today” and in some instances “Freshly Baked In-Store”. In addition to packaging, signs said “Freshly Baked” or “Baked Fresh”. But it wasn’t. It was par-baked offsite and wasn’t fresh at all, the on-site baking merely finishing a part cooked product. For its false and misleading conduct Coles was fined $2.5m.

The regulatory authority directly in charge of this area is the Australian Competition and Consumer Commission, the ACCC, who has just had a change of boss. Rod Sims retired as chair in March and was replaced by Gina Cass-Gottlieb. Rod Sims’ parting shot was to warn businesses that if they are misleading or deceiving consumers about their green credentials, they risk booking themselves an appointment with the courts prosecuted by the ACCC or other private entities. In his words:

“Greenwashing’ is a concern for both consumers and businesses. Consumers are often unable to determine the veracity of a product’s green credentials, reducing their confidence in the market. And businesses incurring the costs of genuine environmentally friendly manufacturing processes face unfair competition from those businesses making misleading green claims without incurring the same costs. The ACCC’s focus on environmental claims and sustainability won’t be limited to consumer goods.”

As soon as she assumed the chair Gina Cass-Gottlieb committed herself to the same end, saying “greenwashing and fabrications about carbon neutrality create unfair advantages”.

We all understand the term ‘whitewash’. In 1986 environmentalist Jay Westerveld used the term “greenwashing” to describe the then new practice of the hotel industry to claim there was some environmental benefit to recycling towels, when the industry’s primary motive was to save money by tugging at an unsuspecting consumer’s conscience. The term stuck. The concise Oxford dictionary definition of greenwash is: “The creation or propagation of an unfounded or misleading environmentalist image.”

So the ACCC’s recent warnings are directed at corporate and business “greenwashers”. Similarly ASIC has indicated it is also concerned about the practice, and there have been legal actions taken against alleged offenders.

Whilst no politician can be prosecuted for making false and misleading statements, businesses, corporations and their office holders can

The Australasian Centre for Corporate Responsibility is a research and shareholder advocacy organisation that, in a landmark action in the Federal Court of Australia is challenging statements of Santos’ claim that natural gas provides “clean energy” and that it has a “credible and clear plan” to achieve “net zero” emissions by 2040. The action is said to be a world first. No company has been legally challenged over a claim of having a net zero target before.

Although this is a private action and not one commenced by any of our public regulatory authorities, the regulators have indicated that they understand and are accepting of the fact that private legal actions will be taken against businesses and corporations now and in the future. Europe, the UK and the US are all heading down the same track.

The Santos case is undecided and remains to be proved. But there have been other cases. Who can forget in 2015 when it was found Volkswagon’s claim that its Golf diesel engine emitted less carbon and greenhouse gas emissions than it actually did was false. The company had been deceptive during its testing processes to manipulate results, and installed software to perpetuate the lie. It turned out the problem was not limited to the Golf but many other VW manufactured cars. US and EU regulators pounced. It cost the company billions of dollars as millions of cars were identified as defective. The fallout continues with authorities globally chasing VW, and its brand has likely been irreparably damaged.

In that case it was an outright fraud, summarised perfectly by the then American CEO of Volkswagen who said “we’ve totally screwed up”. Usually greenwashing is more subtle. Feel good statements and claims that don’t add up under scrutiny. Corporate-speak that when closely analysed is more of the same conscientious drivel that falls from some in industry, but which can be misleading to consumers if not strictly true. Glossy slogans that don’t mean much, but drape a company in seemingly decorous corporate livery when it comes to the environment and ethics, but which lack specifics and detail.

Of the ASX 200 companies cited by Greenpeace as having established set net zero or carbon neutral targets only 16 had committed to 100% renewable electricity, begging the question of how the targets are to be met.

What are the lessons here for Australian business? Whilst it is attractive to say the right things in board meetings, and in public relations efforts in an attempt to promote an enterprise as ethical and green, as well as to enjoy the feeling experienced by the virtuous, the clear message is don’t spin a yarn. Claims of getting to “net zero” by a particular date if entirely fatuous may see businesses facing the music in courts of law. There will need to be clear evidence of how it intends to get there.

As to whether we will ultimately be better off if we do is another question altogether. Right now you may be more worried hoping the lights will stay on.

Morry Bailes is Senior Lawyer and Business Advisor to Tindall Gask Bentley Lawyers, past president of the Law Council of Australia and a past president of the Law Society of South Australia.