On 27 October 2022, ASIC announced that it had taken its first formal enforcement action for ‘greenwashing’ and issued penalties.  ‘Greenwashing’ is the practice of misrepresenting the extent to which a product or business practice is environmentally friendly, sustainable or ethical.  The development is consistent with ASIC’s previous statements that it will not hesitate to take action to prevent harms arising from greenwashing, and also with the crack down on greenwashing that we are seeing from regulators overseas.

The action was taken against ASX listed company, Tlou Energy Limited (Tlou).  Tlou is involved in various power projects in Africa.  Tlou included reports and presentations about its business operations in ASX announcements made in October 2021.  Those materials were said to include statements and images in which Tlou claimed that:

  • electricity produced by Tlou would be carbon neutral;
  • Tlou had environmental approval and the capability to generate certain quantities of electricity from solar power;
  • Tlou’s gas-to-power project would be ‘low emissions’; and
  • Tlou was equally concerned with producing ‘clean energy’ through the use of renewable sources as it was with developing its gas-to-power project.

ASIC was concerned that Tlou either did not have a reasonable basis to make the representations, or that the representations were factually incorrect. 

ASIC issued four infringement notices to Tlou.  The notices alleged that Tlou made false or misleading representations in contravention of s 12DB(1)(a) of the Australian Securities and Investments Commission Act 2001 (Cth).  ASIC issued Tlou with a penalty of $53,280.  Payment of an infringement notice is not an admission of guilt or liability.

Tlou paid the penalty but said that it did not accept that it had contravened any relevant laws.

The development is a timely reminder that greenwashing is a key enforcement priority for major regulators like ASIC and the ACCC, and that action will be taken where necessary.  In announcing the action against Tlou, ASIC confirmed that it is currently investigating a number of listed entities, super funds and managed funds in relation to their green credentials claims.  ASIC said that companies were on notice that it is actively monitoring the market for potential greenwashing and will take enforcement action, including Court action, for serious breaches.

With the threat of regulatory action for greenwashing having now well and truly crystallised in Australia, it is more important than ever for organisations to have in place strategies to avoid or reduce the risk of greenwashing.  In previous updates we outlined key issues which companies should consider, some of which are included below by way of reminder:

Have you used vague terminology?

Broad, unsubstantiated sustainability-related statements without clarifying information should be avoided.  Examples include terms such as ‘socially responsible’, ‘ethical investing’ and ‘impact investing’.  Such statements can be subjective, and therefore organisations should explain the terminology if used in promotional material.

Are your headline claims potentially misleading?

Headline sustainability-related claims should not of themselves be misleading, and exceptions or qualifications should not be used to clarify the claim.  If exceptions or qualifications are required, they should be placed in a way that draws obvious attention to them and they should be consistent with other disclosure content, including the headline claims.

Is your product true to label?

Labels play an important role in guiding investors and consumers about what they will be buying and investing in and as such, they expect that the label will align with the product’s underlying strategy or function.  There is currently no standardised labelling for sustainability-related products. Entities should therefore ensure that their label is not misleading and accurately reflects the substance of the product itself.

Do you have reasonable grounds for a sustainability target? Have you explained how they will be measured and achieved?

If the product has set a certain sustainability target, the target should be explained, including what it is, how it will be met and by when, the method for measuring progress towards the target and any assumptions underpinning this information.

Have you documented the basis for your sustainability statements or targets?

It is important that your organisation implements and follows robust verification processes in order to ensure that any sustainability statements can be substantiated, and/or are sufficiently qualified such that a reasonable person would not be misled.  That work should be documented, and legal advice obtained, where appropriate. 

Some regulators, like the ACCC, have the power to issue substantiation notices which require a person to give information and/or produce documents that could be capable of substantiating or supporting a claim or representation they made.  The ACCC has indicated that substantiation notices may be one of its preferred tools for investigating green claims.