The cost of greenwashing

a soil and a single sprout

Every company should be on notice that while expectations around emissions and sustainability are rising, so too is scrutiny of environmental claims – and the reputational price to be paid for any taint of ‘greenwashing’ will be high.

Adopting a public sustainability stance has benefitted many brands, striking a chord with the community and customers. With even coal miners starting to profess sustainability credentials, regulatory and activist spotlights are shining on any false claims and failings. Pronouncements are not enough, verified action is required.

This month’s prosecution by the Australian Security and Investments Commission of Mercer Superannuation for misleading customers about its “sustainable” investment offerings should have put boards and CEOs on alert.

But the Australian Competition and Consumer Commission’s announcement of a survey suggesting more than half of businesses were promoting “concerning claims about their environmental credentials” – with a series of investigations underway - could make many wake in fright.

The survey of nearly 250 businesses and brands across eight sectors found concerns of false and misleading claims with 57% of those examined.

“Already, we have several active investigations underway across the packaging, consumer goods, food manufacturing and medical devices sectors for alleged misleading environmental claims,” said ACCC deputy chair Catriona Lowe, suggesting more investigations would be launched.

Another issue was companies making absolute claims their products were 100 per cent plastics free, recyclable or had zero emissions. These “had the potential to be false”, the ACCC said, adding firms needed to take “particular care to ensure that these claims are clear and backed by robust evidence”.

Both ASIC and the ACCC flagged a crackdown on greenwashing last year, but the prosecution of retail superannuation player Mercer puts ASIC at the front of the regulatory pack. Targeting super has massive implications, given the influence trillions in investments has across the corporate landscape.

ASIC alleged Mercer Superannuation, which oversees $27.5 billion in assets, misled its Sustainable Plus fund members by claiming it excluded companies involved in carbon intensive fossil fuels, but heavily invested in 15 stocks from the sector including AGL Energy, BHP, Glencore and Whitehaven Coal.

It also pointed to numerous investments in alcohol and gambling stocks, despite the fund stating these areas were excluded from investments.

Aside from confirming it was co-operating with ACIS investigators, Mercer has not responded publicly to the substance of the allegations, only issuing a disingenuous “it would be inappropriate to comment further as the matter is now before the courts”.

As this is a civil prosecution, not before a jury, there is no issue of contempt. I suspect Mercer simply didn’t want to admit its failings. As a result, its credibility is in tatters – owning a mistake and outlining steps to ensure it wasn’t repeated would have been a better response.

Industry sources tell Reputation Eye that Mercer’s breaches were clear-cut, but a result of ham-fisted attempts to balance earnings and holdings – without considering sustainability requirements – rather than an intentional effort to mislead investors. It goes to the need for governance and ongoing scrutiny of sustainability performance.

I believe that Mercer was more than willing to cop a fine, but ASIC was looking for a public example to signal the seriousness of its intent. ASIC has issued over $140,000 in infringement notices to several corporates in response to concerns about alleged greenwashing, but this is its first prosecution.

It underlines the risk of any missteps on sustainability, the importance of credible and verified commitments, the requirement of independent performance evaluation, and the need to plan for and respond to criticisms when they are made.

The public doesn’t expect perfection, but they demand accountability, and regulators are following their lead.

There should be no corporate complacency; expectations are rising and will continue to do so amidst the struggle to achieve net zero in less than three decades. Reputation Eye understands there are already some whispered conversations over the measurements used by some respected corporates to claim they run on 100 per cent renewables.

The game is changing, and smart players need to stay in front of it.

Mark Forbes, Director of Icon Reputation

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