Login
Courts unlikely to ‘rubber-stamp’ greenwashing allegations from regulators
With three companies currently facing civil penalty actions brought by ASIC for alleged greenwashing, recent judicial comments have revealed potential issues in the regulator’s approach to “stamp out” greenwashing.
Lauren Croft
Following the growth of the ESG sector in recent years, investor and consumer appetite for environmentally friendly purchases and investments has grown – resulting in an increased level of (and incentive for) greenwashing.
ASIC currently has three greenwashing-related civil penalty actions before the Federal Court against Mercer Super, Vanguard Investments Australia and Active Super.
Earlier this month, a Federal Court hearing was held in ASIC’s second greenwashing proceeding against Vanguard, whereby Justice Michael O’Bryan unveiled some key issues in ASIC’s greenwashing case and declined to adopt the watchdog’s suggested “declarations” regarding Vanguard’s conduct.
ASIC had previously alleged that ESG research was not conducted on a significant proportion of issuers of bonds in the Vanguard Ethically Conscious Global Aggregate Bond Index Fund – which was marketed to ethically conscious investors. This lack of research, ASIC alleged, made the ethically conscious claims misleading and violated ESG criteria for 42 issuers and 180 bonds in the index, and at least 14 issuers and 27 bonds in the fund.
However, as reported by The Australian, Justice O’Byran said that it’s important to be “wary about attributing certain assumptions to readers which are not generated by the text they are reading. It’s just their assumptions. They could make assumptions based on their own ethical framework” and that “sometimes language is really plain. Even for a mum and dad investor it seems pretty plain”.
These comments, Clayton Utz commercial litigation partner Matthew Spain outlined, suggest that it will be “difficult for ASIC to establish greenwashing by seeking to join a series of dots to then conclude that greenwashing has occurred and that the emphasis ought to be on a corporate’s headline claims in their marketing and promotional materials, rather than going too deep into the minutiae, which has generally been ASIC’s approach to date with greenwashing.”
“As best we can tell and while it’s strictly not necessary to prove contravention, it’s noteworthy that in none of these cases has ASIC put on evidence from any consumer who’s said that they were in fact mislead by any of the materials upon which ASIC is prosecuting the respondents,” he said.
In addition, ASIC’s first greenwashing case against Mercer Super for allegedly making misleading statements about the sustainable nature and characteristics of some of its superannuation investment options has avoided a trial and is now an “agreed penalty case”.
In December last year, ASIC had urged Federal Court Judge Christopher Horan to issue a fine upwards of $11 million; but Judge Horan said he was unlikely to decide on a final penalty until early this year.
These kinds of delays could result in detrimental effects for ASIC’s crackdown on greenwashing, Spain added.
“It’ll be interesting to see how the different approaches to the cases by the respondents and the judges will play out over the coming few months. What appears to be clear enough is that, with the comments made by Justice O’Bryan and with Justice Horan reserving his decision in the proceeding since early December 2023, the court will not be quick to simply rubber-stamp positions advanced by ASIC,” he said.
“If things don’t go ASIC’s way, corporates will be eagerly watching to see how far ASIC is willing to take its current enforcement priority on greenwashing, either by way of appeal or by a change in its approach to ‘stamping out’ alleged greenwashing. Until those decisions trickle through, we expect corporates to continue with the generally widespread conservative approach to their marketing and promotional material.”
Lauren Croft
Lauren is a journalist at Lawyers Weekly and graduated with a Bachelor of Journalism from Macleay College. Prior to joining Lawyers Weekly, she worked as a trade journalist for media and travel industry publications and Travel Weekly. Originally born in England, Lauren enjoys trying new bars and restaurants, attending music festivals and travelling. She is also a keen snowboarder and pre-pandemic, spent a season living in a French ski resort.
