Environmental, social, and governance (ESG) factors have become an increasingly important consideration for investors and regulators as awareness of climate change and other sustainability issues grows.
ESG factors are are non-financial factors that investors and lenders use to identify material risks and growth opportunities and include the following, and are core to an organisation’s strategy and operations.
However, with the rise of ESG, there comes an increased focus on greenwashing. In Australia, the ACCC and ASIC are working together to address greenwashing or misrepresenting a company’s environmental credentials.
What is greenwashing?
Greenwashing is the act of making false or misleading statements about the environmental benefits of a product or practice.
Some examples of greenwashing are when organisations make broad or exaggerated sustainability claims without evidence, overstate their positive environmental impact, or promote their products as eco-friendly whilst sourcing raw materials from unsustainable suppliers. Companies can greenwash intentionally and unintentionally.
ASIC has recently taken action against several companies for making false or misleading claims about their sustainability practices, highlighting the enforcement priorities of both regulators.
Furthermore, in the ACCC’s ‘Greenwashing by Businesses in Australia’ report, 57% of businesses out of a sweep of 247 different businesses and/or brands were identified as making concerning claims. The top 3 sectors were Cosmetic and personal care, Textiles, garments and shoes and Food and beverages. The key issues identified were:
- Vague and unqualified claims
- A lack of substantiated information
- Use of absolute claims
- Use of comparisons
- Exaggerating benefits of omitting relevant information
- The use of aspirational claims
- Use of third-party certifications
- Use of images (logos or symbols) which appear to be trustmarks
Recommendations for avoiding greenwashing
The Insight recently provided 13 recommendations for avoiding making representations that could give rise to greenwashing. These include:
- The key risk in promoting current environmental credentials is overreaching. Always consider how customers and investors will understand broad claims such as ‘sustainable’, ‘green’, ‘socially responsible’ and ‘recycled’.
- Avoid broad or absolute claims that may overstate the environmental benefit.
- Make claims more targeted and monitor progress against established targets.
- When making green claims which involve a production process, consider whether you can accurately make the green claim concerning the entire process.
- Ensure not to omit any relevant information when promoting green credentials. In the financial services sector, this includes explaining how sustainability-related considerations are incorporated into investment decisions or stewardship activities.
- Ensure that ESG, external communications and legal and compliance teams work together to ensure that internal sign-offs on ESG promotional activity are robust and effective.
Looking ahead, it is clear that ASIC and the ACCC will continue to focus on greenwashing and sustainability issues.
As companies increasingly seek to promote their sustainability practices, it is essential to do so transparently and accurately to avoid the risk of regulatory action and maintain the trust of investors and customers.
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Contact us today to see how we can help work together.
Read more in our ESG series
Please note that the information provided here is general and does not constitute financial, tax or other professional advice. You should consider whether the information is appropriate for your needs and seek professional advice before making any decisions.