‘Greenwashing’ is the practice of providing false or misleading claims about a company’s environmental credentials. It distorts investment decisions and has the potential to cause financial, legal and reputational damage for companies who are penalised for the practice.
Greenwashing is a key enforcement priority in 2023 for corporate regulators, the Australian Securities and Investments Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC).
Promoting sustainable practices is a leading concern for all businesses nowadays, however, companies should be careful not to promote or exaggerate environmental or social claims to investors and consumers without having the credentials and basis to back this up.
How to Avoid Greenwashing
Companies should avoid using vague or broad terms to describe their net zero claims, unless they can substantiate these with evidence. Without evidence, the claims can be misleading. Companies can avoid greenwashing by putting in place an effective ESG strategy that includes a decarbonisation or climate transition plan. It is now crucial that businesses develop an ESG roadmap and processes to demonstrate integrity within their supplier value chain and to ensure that stakeholders, investors and customers can make informed investment decisions.
Look Closer for ‘Greenwashing’
Below are some examples of greenwashing:
- Businesses that report or promote a net-zero commitment or target in their marketing, social media or sustainability reporting, or who use terms such as ‘carbon neutral’, ‘clean’, ‘green’ without supporting this with factual evidence are at risk of greenwashing.
- Using vague and broad terms to promote or label a sustainability-related investment fund or financial product as ‘net zero’ or ‘socially responsible’. Labels need to be clear and true and reflect the substance of the product, otherwise it is at risk of being misleading information. For example, ASIC has launched a case against Vanguard Investments for promoting ethically-conscious bonds that in fact have ties to fossil fuel companies.
- Some companies may bury environmentally damaging practices in the fine print of product labels with contrasting main advertising and headline claims using eco-friendly buzzwords.
- Companies that use inaccurate language to describe their investment screening criteria. Disclosures should enable investors to understand the criteria and any qualifications and exemptions should be clearly stated.
For more guidance on building an ESG program, chat to a Sustainability Consultant today.