Earlier this year, we published articles covering Noel Hutley SC and Sebastian Davis’ 2021 updated opinion on directors’ duties and climate risk. Corporate Australia has broadly endorsed the notion that directors have a positive duty to consider climate risks in business decision making, and there have been several supportive developments across the courts, parliament and the regulatory space.
A recent issue is “greenwashing”, a term that describes conduct that is misleading as to the environmental characteristics of a company, product or project. It can also include paying lip-service to decarbonisation and net-zero goals (sometimes referred to as ‘green wishing’) in order to capitalise on the goodwill often attached to companies perceived to have positive green credentials.
As the clean energy and decarbonisation transition gathers momentum, we expect increasingly sophisticated regulatory responses to Greenwashing which will expose officers and their companies to risk. This article provides a brief preview of issues we foresee developing in the near future. The G+T clean energy and decarbonisation team will be closely following these issues and will be covering them in more detail in future publications as they develop.
The future is now – and so is the risk
ASIC has confirmed Hutley and Davis’ predictions that greenwashing is a live issue that ASIC are monitoring and that such conduct may breach the Corporations Act and the ASIC Act. ASIC has already issued warnings to several companies regarding potential non-compliance.
Hutley and Davis’ opinion noted that net zero commitments and formalised climate-risk reporting frameworks are relevant to the “foreseeability and materiality of climate risks”. The Federal Court of Australia recently handed down a landmark decision in recognising that the Commonwealth Minister for Environment has a duty of care to protect young people from climate change when exercising powers of approval relating to coal mining projects.
There is a right way to make disclosures
At a recent Market Liaison Meeting, ASIC noted frustration at the lack of uniform reporting and disclosure methods. ASIC explicitly endorsed the Task Force on Climate-Related Financial Disclosures (TFCD) framework as its preferred disclosure method. Since then, APRA has released consultation draft CPG 229 on managing climate-related financial risks which explicitly states that it is based on the TFCD framework.
We consider it will be useful for Australian companies to adopt this framework early, as regulators will likely push for its substantial imposition. Companies who are already compliant will be well-positioned for any regulatory overhaul.
Playing it safe is too dangerous
2021 has seen a noticeable uptake in net-zero emission commitments. These commitments can expose companies to risk, especially if they are not made upon a reasonable basis. Given the inherent uncertainty of uncharted regulatory landscapes and unproven technologies seeking to provide the decarbonisation solution, it is understandable that some might err on the side of caution and avoid making climate-related statements or commitments. However, abstaining from such comments and taking a safety-first approach may itself transform the transition to clean energy and decarbonisation into a slippery slope of risk exposure.
If the TFCD framework is implemented in Australia, as noted by Hutley and Davis, it may actually require directors to make certain representations about the future, potentially including net-zero commitments or aspirations. If such representations are not made upon a reasonable basis, the company or directors may contravene misleading or deceptive conduct prohibitions.
Complex scientific concepts have a tendency to mislead…
A lesser-explored issue concerns consumer protection in the clean energy context. Home batteries, solar panels and zero-emission vehicles are becoming increasingly popular. This uptake in adoption brings with it regulatory issues. For example, companies may attempt to position themselves as the ‘cleaner’ alternative or make representations about the comparative efficiency of alternative energy sources.
No matter how it is marketed, how or why a given energy source is ‘clean’, cleaner or more efficient than competing products is a complex scientific concept. Prohibited statements do not need to be intended to mislead, nor is it required that any person is actually misled or deceived. The law only requires that a statement has a tendency to, or is likely to mislead or deceive a person of the intended audience.
Be alive to the risk
Staying informed is critical to compliance and good governance. The clean energy transition is outpacing corporate regulators and legislators, but that does not mean the risks are not as populous, real and present. Many clean energy issues are within the scope of existing regulatory frameworks. Some of these were not designed to deal with clean energy concepts, potentially exposing even honest, genuine conduct to retribution.
To ensure that you are informed and alive to potential risks, ensure you subscribe to G+T’s clean energy and decarbonisation publications to lead you through the clean energy and decarbonisation transition.