By Jim Snow, Executive Director, Oakley Greenwood, and Adjunct Professor, University of Queensland
Jim Snow has been an expert witness in federal court matters, public inquiries related to emissions issues and market issues, arbitrations, enforcement matters, and commercial litigation. He is also involved in consulting on Environmental, Social and Governance (ESG) advice. Ahead of the Sustainability Reporting Summit 2024, he’s given his thoughts on avoiding greenwashing claims and accusations related to sustainability reporting and associated statements.
Greenwashing and Sustainability Reporting
This short paper includes my thoughts on the matter of perceived or accused “greenwashing” related to sustainability reporting, using the example of the hot topic of the transition to net zero emissions for businesses in Australia.
Please note that these thoughts are not meant to represent the views of my esteemed legal colleagues (or imply any legal advice) and are not directly related to any greenwashing case that I am currently involved in or that are currently in the courts.
Making Public Statements
Sustainability Reporting is largely the act of making public statements (willingly or required) and can be in written form, via presentations, or even interviews that go to air. These if recorded in any format are treated as evidence and therefore are subject to interpretation and intense scrutiny, and possibly litigation. They can also have differing interpretations dependent largely on the stakeholder groups that may look at these and take issue or want more details, etc.
This very “public” aspect of sustainability reporting has also led to cases of what is termed “green hushing” where businesses simply elect to minimise any public reporting of their greening activities, which in my view is a poor outcome to adopt.
- In the transition to net zero emissions businesses under both sustainability reporting and (intense) ESG pressures have started to make public statements to their various stakeholder groups on their:
- Targets for emissions reduction
- Timetables for reaching those targets
- Methods for achieving those reductions within those timelines
- Achievements or results to date
- They also often make statements or provide material in support of any “green” products they may produce or make claims about in that regard
- The competitive space for such products in some markets is driving the impetus to make greening claims, through the use of net zero fuels
There are now cases where these statements have been called into question as being deceptive and/or misleading or just an exercise in public relations. This has led to a combination of public corrections being issued, and court-based actions to seek those statements to be changed and/or for fines to be levied. Successful actions in this space also give rise to reputational damage that most businesses treat with significant concern, especially at board and senior managerial levels.
Getting it right
I regularly get asked about how to avoid statements or reporting being overtly challenged as to their veracity. Statements are tested for their ability to be implemented and deliver the targets or outputs, within the timelines proffered, so it is vital that they are carefully considered before being issued.
There are a couple of key issues to consider:
- Timing issues - are the stated goals or outputs achievable by the dates described (e.g., “net zero by 2025”)?
- Current knowledge - any statement needs to be properly developed using, and robustly documenting, what is known at the time
Cases can take up to two years to land on my desk as an expert witness. They then need to be measured on what was reasonable to say at that time. The courts seem to like to see evidence/research which demonstrates that the statement was indeed (legally) reasonable to make when it was issued. I rely heavily on what was known and published at the time – and the “weight” I can give to those publications in terms of being able to rely on their use or give them a level of credence (at the time). Without going into too much depth here the meaning of the words used (as presumably understood by the class of persons to whom the conduct is directed) also matters, so selection of language also counts.
Dangers of jumping the gun – real probity is important
Many of the problems I see with potential greenwashing relate more to zeal or competitive pressures rather than a conscious intent to mislead or deceive, but this is no defence. Sustainability reporting and claims need to be heavily scrutinised, and stress tested internally, and even tested with small consumer groups before release.
- Many businesses are understandably eager to communicate that they can reach some form of net zero very quickly – it is a very common claim when reporting sustainability
- In their enthusiasm, they can underestimate the nature of the task and how long it will actually take, and how much it could cost.
- Businesses need to soberly consider whether what is being outlined in net zero statements can actually be achieved.
- There is a temptation to issue aspirational statements, driven by the need to say/do something – anything. This well-intended enthusiasm (or in some cases panic/catch-up) can blur the lines between saying they will do things and having clear evidence that they can do those things.
- By making overly ambitious announcements, they also risk closing off less adventurous or elaborate but nonetheless effective pathways to reducing carbon emissions in reasonable timelines – because it sounds good or resonates with stakeholders does not mean it is the best solution
- For example, by leaning into the justifiable use of carbon credits and greener grids:
- Businesses can be over-sensitive about being seen to “buy our way out of the problem” by using carbon credits, even though this may be highly defensible at the time if used properly as part of a well-considered plan.
- There is also a trend to underestimate the greening of both the electricity grids and gas grids and how this can also be built into a defensible part of the solution.
- The South Australia electricity grid, for example, has 30% of the emission for each unit of electricity compared to that of Victoria, as it has no coal generation and continues to roll out renewable generation (as does WA). As coal retreats, this will become the case across the NEM. As gas grids start to blend in renewable gases, emissions profiles will drop in a similar way.
There is a balance between making statements in sustainability reporting that are intended to meet expectations, impress stakeholders or gain a competitive market advantage and the ability to prove that they can be actually implemented or delivered.
Testing technical details, product claims and cost forecasts
The issue of technology and product development and forecasts of actual costs are often poorly researched or inaccurately portrayed.
At worst I have seen some absurd technical statements and related plans being made or advised to Boards under ESG planning as a “way forward.” Such plans will not stand up to any expert scrutiny, and often not even the scrutiny of the product development, operational and technical folks within the businesses!
But they do sound grand – until they hit the courtroom.
I see many businesses rushing to “solutions” as they do not want to be seen to be lagging their contemporaries. Many of these “solutions” are often grabbed from what is populist at the time, particularly by government, as this is seen to be “on-trend” and therefore reasonable.
Think it out
It is wise to engage internally in formal reviews of what sustainability reporting assumptions and data is being published or used in presentations. Multiple views need to be garnered in my experience – management, operational staff, product developers, sales teams, marketing and PR, legal, technical folk, etc. This is tedious but on any key greening reporting and statements it needs to be seriously considered. But equally it should not drive toward inappropriate “green hushing”. In the end it has to be clearly outlined as to the “what”, “why”. “how” and “when”.
Many rushed (not thought out and tested) reporting statements are unlikely to be legally defensible. The word “reasonable” for example, can have a very different connotation in court.
- If it comes to legal action, net zero statements will be scrutinised at a forensic level by extremely talented legal folk
- Similarly, a very focused review and skilfully instructed opinion provided by various experts in the sector can have major implications in a case - referencing market or other practices at the time the statements were made
- I am aware of a lot of advice being offered to businesses (primarily as “ESG” advice) on transitioning to net zero emissions. I have reviewed quite a few of these plans with some alarm (and some provide a good chuckle)
- Although well-meaning, they are likely to put the organisation's reputation at considerable risk
- There is a need to be conservative in net zero statements and planning. It is always easy to consolidate when more evidence or options firm up, but over-selling a specific position can prove quite disastrous (lots of time, money and reputational risks are involved in any case)
My advice to most businesses is to properly sanity check and ground proof statements and ESG advice and avoid well-intended bravado. Intentions are not plans and this needs to be crystal clear.
The benefit of the first few greenwashing cases will be the development of case law and the forensic testing of various approaches, assumptions, reporting and statements. Some of this will also flow into statute law over time.
Collaborative efforts will, and should, extend beyond national borders. Australia's circular economy initiatives can contribute to global sustainability goals and strengthen international partnerships. By sharing research, expertise, and resources, Australia has an opportunity to play a significant role in advancing the circular economy globally.
Hear more from Jim Snow and other leaders in sustainability reporting at the Sustainability Reporting Summit 2024. View the full agenda here.
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