ASIC Reports on Greenwashing Misconduct

ASIC’s greenwashing surveillance activities and findings focused on sustainability-related disclosure and governance practices of listed companies, managed funds and superannuation funds, specifically:

• Voluntary Taskforce on Climate-related Financial Disclosure (TCFD) reporting by very large, listed companies;
• Sustainability-related representations made by listed companies outside of the ASX 200, including ‘net zero’, ‘carbon negative’ and other climate-related claims;
• The governance practices and processes adopted by responsible entities of ESG funds; and
• The sustainability-related disclosures made by superannuation trustees.

While most greenwashing observations and related recommendations were directed at investment managers or firms providing investment advice, two observations and related recommendations were directed specifically at listed companies (with an emphasis on observations from the energy and commodity sector) as follows:

1. Sustainability-related claims made without reasonable grounds; and
2. Sustainability-related claims made without sufficient detail.

We summarise these observations below.

[1] Sustainability-related claims made without reasonable grounds

We identified instances where sustainability-related claims, including claims about emissions profiles and environmental impacts, and statements about projected revenues and project status, did not appear to be based on reasonable grounds.

These representations were identified across a range of disclosures, including prospectuses, websites, promotional materials and market announcements. We issued three infringement notices, to a super fund promoter and a listed company, and obtained corrective disclosure outcomes.

Commodity Firm Fined AUD $19,000 for misleading ESG statements. One enforcement example provided by ASIC related to two infringement notices issued with a related fine of AUD $19,000 to Fertoz Limited (click here), an ASX limited entity specializing in fertilizer mining, manufacturing, and supply, for making false and misleading statements in a presentation published on the ASX claiming that it would obtain an offtake partner, or receive funding for its reforestation project in the Philippines by the end of 2023, and begin planting the initial hectares in the respective area of the project in Quarter 4, 2023. At the time of the ASX publication, Fertoz had no funding partner or funding to progress its project.

Corrective Disclosure Measures – Energy and Commodity Firms. Additional examples of corrective disclosures specifically related to energy and commodity companies who made sustainability-related claims without reasonable grounds were as follows:

• Unfounded ‘zero carbon’ claim corrected. A chemicals company stopped using the term ‘zero carbon’ because it was not possible to produce their product on a ‘zero carbon’ basis. References to the misused term were replaced with ‘net zero carbon’.
• Unfounded ‘negative carbon’ claim removed. A metals and mining company stopped using the term ‘negative carbon’ to describe the carbon footprint of one of its development projects, because the project did not involve carbon removal, which is central to the Intergovernmental Panel on Climate Change's (IPCC’s) definition of ‘net negative greenhouse gas emissions’. The company clarified that its project was instead ‘net zero’.
• Scope of ‘carbon neutral’ claim clarified. A metals and mining company corrected its website by amending wording from ‘will’ to ‘intends to’, clarifying that one of its exploration and development projects was not yet carbon neutral. While the company had obtained a certification for carbon neutral status, this did not encompass the mining project. As such, there were no reasonable grounds for the carbon neutral claim to be linked to that project.
• Carbon, capture and storage revenue projections retracted. An energy company provided clarification to the market relating to the future revenue potential of its carbon, capture and storage project. A forward-looking statement about revenue potential was retracted because it relied significantly on prospective resource estimates. Prospective resource estimates are, by definition, a quantity of accessible undiscovered storage resource estimates. Under the ASX’s listing rules for traditional oil and gas companies, future revenue forecasts cannot be based on these estimates.
• Unsupported environmental claims removed. A metals and mining company stopped making ‘green’ claims and representations that its processing plant was ‘net zero’ and ‘carbon neutral.’ The company had promoted its innovative processing technique as having a lower environmental footprint compared to traditional processing methods without disclosing test results or key underlying assumptions to support its claims.
• Sustainable operations claims withdrawn. A metals and mining company retracted sustainability-related statements made in investor presentations that were not supported with reasonable grounds. The statements claimed that the company would establish environmentally friendly and sustainable processing facilities, as well as produce critical minerals in a sustainable manner to facilitate its energy transition. However, at the time the statements were made, the company’s proposed technology to achieve this sustainable processing had not been proven for commercialisation.

[2] Sustainability-related claims made without sufficient detail

We observed instances where investors were not provided with the information required to understand the context, status or scope of various sustainability-related claims and initiatives. This extended to claims by responsible entities and superannuation trustees about the weight placed on sustainability-related factors.

A lack of sufficient information often coincided with the use of vague terminology and undefined terms. These representations were identified across a range of disclosure types, including prospectuses, scheme booklets, PDSs, websites and other promotional materials.

Corrective Disclosure Measures – Metals & Mining Firms. Additional examples of corrective disclosures specifically related to metals and mining companies who made sustainability-related claims without sufficient detail were as follows:

• Further detail on sustainability initiatives disclosed. A metals and mining company provided further disclosure in a replacement prospectus to explain the company’s initiatives to reduce operational power consumption and manage its carbon emissions. The amended disclosure specified the actions the company had taken in support of those initiatives, such as the use of solar power, and the company’s intention to employ a system to collect and report on carbon emission data.
• Carbon emission statement supported. A metals and mining company issued a supplementary prospectus disclosing further information and context to support the sustainability-related claims made in its original prospectus. The supplementary prospectus provided additional detail in relation to statements made about the company’s use of renewable energy and the absence of hazardous chemicals used in its production processes. The company also provided additional disclosure to clarify how its products contributed to lower carbon emissions.
• Further detail on the impact of bidder’s climate-related strategy disclosed. A metals and mining company made additional disclosures in its draft scheme booklet to better explain the bidder’s climate-related strategy. The updates included detailing how the bidder’s sustainability targets would facilitate the company’s reduction of greenhouse gas emissions. Revisions to the booklet also explained how the bidder’s sustainability-related policies enabled it to achieve a competitive advantage over the long term. Further disclosures provided in the booklet ensured that other sustainability-related statements were supported by reasonable grounds.

ESG enforcement trends are rapidly gaining traction. RegTrail’s analysis of ESG enforcements globally points to several active regions including Australia, the US and Europe which is perhaps not surprising given these countries' stringent net-zero mandates.

In parallel however, there are also growing countervailing forces in the form of an anti-ESG lobby that is actively challenging these new rules, particularly in the US. This article from the Dutch law firm Loyens & Loeff provides a useful perspective on this trend.

RegTrail previously reported on several Greenwashing enforcement cases as follows:

1. (click here) 24 July 2024 (Europe) - Vattenfall to stop using the claim “Fossil free living within one generation”
2. (click here) 25 June 2024 (Australia) - ASX listed company pays two infringement notices for greenwashing in market announcements;
3. (click here) 30 April 2024 (Europe) - EU Commission - Commission and national consumer protection authorities starts action against 20 airlines for misleading greenwashing practices;
4. (click here) 15 August 2023 (US) - SoCalGas Settles With California Attorney General Over "Renewable" Claims

Energy and commodity companies operating in these regions navigate a fragmented regulatory landscape and must adhere to specific regional requirements making compliance of ESG reporting cumbersome and time consuming.

The key findings from ASIC’s listed company surveillance of greenwashing provides firms clarity on how the regulator is monitoring this activity and what its compliance expectations are for firms moving forward.

Regulator Surveillance Approach - Greenwashing for Listed Companies

ASIC conducted surveillances to assess the sustainability and climate-related disclosures made by ASX-listed companies which included reviewing annual and sustainability reports, investor presentations, and market announcements.

ASIC also focused on sustainability claims made by smaller companies outside the ASX 200, particularly those claiming to be 'net zero' or 'carbon negative.'

The primary goals of its reviews were to:

• Test legal compliance;
• Identify potential greenwashing; and
• Evaluate the overall quality of climate-related disclosures and governance practices.

The review included assessing voluntary reporting under the Task Force on Climate-related Financial Disclosures (TCFD) by large, listed companies. While areas for improvement were noted, no significant issues regarding misleading or deceptive disclosures were found.

Key Findings, Recommendations, and Good Practice Example

Key Findings

ASIC's review of small-cap and listed companies revealed several common issues in climate-related disclosures:

• Inconsistent Terminology. Companies frequently used key terms like ‘zero emissions,’ ‘net zero emissions,’ and ‘carbon neutral’ interchangeably, leading to confusion. Clear definitions and consistent usage of these terms are essential to support investor understanding.
• Lack of Detailed Disclosures. Companies often did not provide enough detail about the inputs, assumptions, and contingencies underlying their climate-related statements, making it difficult for investors to assess the viability of these claims.
• Varied Carbon Accounting Practices. Inconsistent approaches to accounting for carbon emissions were observed, complicating the comparison of climate-related claims and potentially misleading investors about a company’s carbon footprint.
• Misaligned Climate Claims. Some climate-related claims were given undue prominence compared to the actual efforts and investments made by the company to achieve these targets, creating a mismatch between the claims and the company’s level of commitment or action.

Key Recommendations

"Entities disclosing climate-related metrics and targets voluntarily should consider and be informed by the disclosure requirements set out in the Australian Sustainability Reporting Standards (ASRS), once published. These standards have been designed in consultation with, and for the benefit of, the end users of this information and capture key details that will assist investor decision making."

ASIC recommends that entities making voluntary climate-related disclosures, including metrics and targets, align their reporting with the Australian Sustainability Reporting Standards (ASRS) once they are published. ASIC noted that these standards are designed with the end-users in mind and provide crucial details that assist in informed investor decision-making.

Firms should carefully consider the relevant paragraphs of the ASRS to ensure their disclosures are comprehensive, transparent, and meet investor expectations for understanding and assessing climate-related information.

Good practice example – Disclosure of Progress Against Climate Targets

ASIC provides an example of good practice for disclosure of progress against climate targets as follows:

"Disclosing progress against climate targets.

An ASX listed company clearly and effectively disclosed their progress towards achieving their stated climate targets in their annual sustainability report.

The company provided a snapshot overview using a table setting out the stated target, including the time frame of the target, and details of the progress made against each of these targets, including relevant metrics, for both that financial year, as well as overall. A rating was provided on each target indicating whether progress was on track or not."

While the above recommendation is straight forward e.g. you must follow disclosure requirement standards set out by a regulator, in practice ensuring that these disclosure requirements are embedded in processes across the organisation is challenging. The ESG team responsible for verifying and incorporating all relevant disclosure information into the financial statements must ensure not only that the disclosures meet all the regulatory requirements but that the underlying data is accurate.

ASIC stresses the importance of accurately reporting information:

"Investors can only make financial decisions based on the information available to them, which is why it is important that entities are prepared to disclose to the market the business plans and sustainability-related strategies they are pursuing. It is, however, equally important that these disclosures, when made, are well- founded, transparent and consistent with the actions being taken by the entity.

How can entities avoid greenwashing?

ASIC continues to encourage product issuers, company directors and advisers to improve the quality of sustainability-related disclosures and the data that underpins them. Sustainability-related information should be based on reasonable grounds, use language that ensures sufficient understanding by investors, and be accurate and data-driven."

ESG Training. In addition to governance over data reporting and actual data calculations, firms overseeing ESG strategies should ensure that both front office and back-office staff have the necessary expertise and training in ESG disclosure and reporting requirements to enhance visibility and ensure compliance of ESG reporting across the company.

Looking Ahead – ASIC’s Continued Focus on Greenwashing in Carbon Markets

Ongoing Surveillance and Enforcement – Focus on Carbon Markets. ASIC noted specifically that it will continue to focus on addressing greenwashing through ongoing surveillance activities and enforcement actions, particularly in the carbon markets and green bond issuances.

ASIC concluded it report noting its efforts to combat greenwashing are set to continue as the regulatory environment evolves. The introduction of mandatory climate-related financial reporting and other sustainable finance reforms will further strengthen its ability to address greenwashing and ensure that ESG claims are accurate and reliable.