ESG challenges: Greenwashing, greenhushing and greenwishing
On an average day, Australians see 122 green claims across 17 sectors online, offline, at the shops or on public transport in a 24-hour period, according to research from the Consumer Policy Research Centre in late 2022.
Despite the proliferation of claims, the research found only 31% had any supporting evidence or verification.
Businesses of all sizes and across industries and sectors are feeling the pressure to be ‘greener’. Investors, shareholders, customers, employees, the public and regulators are all expecting businesses to up their game when it comes to ESG and particularly environmental issues like sustainability and climate risks. While businesses strive to meet those expectations, some are falling into the mire that is greenwashing.
Greenwashing can be defined as the practice of misrepresenting the extent to which a product or service is environmentally friendly, sustainable or ethical.
Jumping aboard the ‘green’ bandwagon has seen some businesses become overenthusiastic in their environmental claims. This zeal can leave the business vulnerable to backlash – from key stakeholders like their customers and investors, and from government regulators.
Regulators focus on greenwashing
Greenwashing is an issue that Australia’s corporate watchdogs are taking seriously. Both the Australian Competition and Consumer Commission (ACCC) and the Australian Securities and Investments Commission (ASIC) have the practice firmly in their sights. In 2024, both regulators took action against companies for greenwashing.
Law firm Norton Rose Fulbright notes that there are several types of greenwashing including:
- disclosure-based greenwashing – where entities embellish their environmental credentials and selectively disclose the existence and management of climate risks they face, whether intentionally or negligently, and
- target-based greenwashing – where entities make commitments to, and imply progress towards achieving, net zero emissions or other climate targets without having in place the internal business, risk and governance practices required to meet those targets.
Both types of greenwashing could result in liability for misleading and deceptive conduct under the Australian Consumer Law, the Corporations Act 2001 (Cth) and/or the Australian Securities and Investments Commission Act 2001 (Cth).
Greenwashing has been an enforcement priority for the ACCC since 2022.
The ACCC conducted an internet sweep to identify misleading environmental and sustainability marketing claims in October/November 2022. It was found that 57% of businesses reviewed were making potentially misleading environmental claims.
In November 2023, the ACCC had its first public enforcement outcome in relation to greenwashing. Yoghurt manufacturer MOO Premium Foods Pty Ltd was given a court-enforceable undertaking in relation to false or misleading claims that its product packaging was made from “100% ocean plastic”.
Five months later (April 2024), the regulator commenced a Federal Court case against a business for greenwashing. It alleged Clorox Australia Pty Ltd made false or misleading representations that its GLAD-branded kitchen tidy and garbage bags were made of “50% ocean plastic”. In February 2025, the ACCC agreed to an $8.25 million penalty against Clorox.
Since October 2022, ASIC has been issuing infringement notices to businesses across the financial services, superannuation and energy sectors in relation to greenwashing. In addition, the corporate watchdog has prosecuted greenwashing participants.
ASIC notes that the main types of conduct that have caused it to intervene can be summarised into a few categories:
- Net zero statements and targets, that were either made without a reasonable basis or that were factually incorrect.
- The use of terms such as ‘carbon neutral’, ‘clean’ or ‘green’, that weren’t founded on reasonable grounds.
- The overstatement or inconsistent application of sustainability-related investment screens.
- The use of inaccurate labelling or vague terms in sustainability-related funds.
ASIC’s first prosecution commenced in February 2023 against Mercer. The superannuation fund was handed an $11.3 million penalty in August 2024 after it admitted it made misleading statements about the sustainable nature and characteristics of some of its superannuation investment options.
The regulator’s first civil penalty for greenwashing in September 2024 saw Vanguard Investments given a $12.9 million penalty for making misrepresentations regarding ESG characteristics of one of its funds.
Both the ACCC and ASIC have clear intentions to continue with their greenwashing investigations and prosecutions, and the courts are not shying away from substantial penalties for businesses found to be engaging in greenwashing.
Mandatory climate disclosures
The heightened focus on compliance coincides with the introduction of mandatory climate reporting. From 1 January 2025 (the roll out is progressive based on the size of the business), many large Australian businesses and financial institutions need to prepare annual sustainability reports containing mandatory climate-related financial disclosures.
The Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 (Cth) requires large businesses to disclose information each year about their climate-related financial risks, opportunities, plans and strategies.
The implementation of the mandatory climate disclosure regime will impose significant reporting requirements on more than 6,000 entities under the Corporations Act, notes law practitioners Barry Nilsson.
It also exposes businesses to greater scrutiny.
Green trifecta – washing, hushing and wishing
It isn’t only greenwashing that some businesses are engaging in. Some are also involved in greenwishing.
Greenwishing, or unintentional greenwashing, is where a business hopes to meet certain sustainability commitments but simply does not have the wherewithal to do so. “Driven by the pressure to set ambitious sustainability goals, companies can find themselves committing to targets that they cannot realistically achieve, perhaps because of financial, technological or organisational constraints,” notes KPMG.
In stark contrast to those who are presenting themselves as more sustainable than they truly are, some businesses are refusing to publicise ESG information. Under-reporting or strategically withholding information about their environmental goals and achievements is known as greenhushing.
KPMG states: “On the surface, greenhushing is not overtly dishonest; however, it limits the quantity and quality of publicly available information. Without this transparency, it becomes challenging to analyse corporate climate targets, share best practices on decarbonisation and calculate Scope 3 emissions, which by definition require widespread reporting.”
According to a report by Swiss-based climate consultancy South Pole, 58% of companies are intentionally decreasing their climate communications because of greater regulation and scrutiny.
Chair of ASIC Joe Longo notes: “In response to ASIC’s scrutiny of greenwashing, some companies may be tempted to cease all voluntary disclosure, chasing greenwashing with a little ‘greenhushing’ … this kind of response is just another form of greenwashing; an attempt to garner a ‘green halo’ effect without having to do the work.”
The Australian Institute of Company Directors notes failing to disclose material climate-related risks can violate continuous disclosure obligations and/or Australia’s new mandatory climate reporting laws.
While there could be numerous reasons why a business chooses to stay silent on their environmental credentials, a key reason is fear of being accused of greenwashing.
Regulators are not the only ones taking greenwashers to court. There has been a rise in the number of private litigations.
Rise of ‘green lawfare’
‘Green lawfare’ refers to the use of legal action by individuals or organisations to achieve environmental goals. It often refers to public interest environmental litigation.
Globally, private actions, including class actions, against alleged greenwashers is on the rise. Class actions for greenwashing are becoming increasingly common as consumers and activists challenge misleading environmental claims made by companies, notes legal practitioners Mintz.
The volume of climate-related litigation has more than doubled since the 2015 Paris Agreement, notes law firm Clyde & Co. While most cases are directed at governments, plaintiffs are increasingly targeting corporations.
The 2023 United Nations Global Climate Litigation Report found that there had been 2,180 climate-related cases filed in 65 jurisdictions within international or regional courts, tribunals, quasi-judicial bodies or other adjudicatory bodies (as of 31 December 2022).
Law firm Ashurst notes that Australia has the highest per capita rate of climate-related litigation in the world and is second only to the United States in total volume of climate-related litigation. Australia is also one of the most developed class action markets in the world. Although activists have brought several climate-related class actions against the Commonwealth Government in the last few years, the next wave of climate-related litigation, particularly in relation to greenwashing, is expected to be taken against private companies. The lawyers anticipate climate-related class actions will emerge in respect to duty of care or nuisance claims by sections of the general public, consumer claims, and shareholder claims.
To date, there have been a few private actions launched in Australia, according to lawyers K&L Gates. One is against UniSuper, brought by a member who alleges that the superannuation fund has made misleading sustainability claims in relation to its investment products. The member has asked ASIC to investigate. Another case has been brought by Australian Parents for Climate Action against Energy Australia, alleging the “Go Neutral” campaign for energy and gas products was misleading. This matter is scheduled to go to trial in May 2025.
It is expected that climate liability risk will increase with the implementation of climate-focussed regulations including the mandatory climate reporting regime which started in January 2025.
Avoiding greenwashing
In December 2023, the ACCC issued guidance for businesses in relation to making environmental and sustainability claims.
According to the guidance, businesses should follow eight principles:
- Make accurate and truthful claims.
- Have evidence to back up your claims.
- Don’t hide or omit important information.
- Explain any conditions or qualifications on claims.
- Avoid broad and unqualified claims.
- Use clear and easy-to-understand language.
- Visual elements should not give the wrong impression.
- Be direct and open about your sustainability transition.
Tips to help businesses comply with these principles include:
- Understanding the business’ legal and regulatory obligations.
- Setting realistic goals for sustainability.
- Emphasising that environmental sustainability is a journey and not a destination – highlighting efforts for continuous improvement.
- Ensuring any sustainability-related claims being made are founded on accurate and factually sound grounds.
- Being honest with your audience about your practices.
- Supporting claims with evidence.
- Avoiding the use of vague language in your environmental claims.
- Taking care when using unequivocal and absolute language and ensuring such language is not likely to mislead.
- Ensuring there is a plan to achieve it if a statement relates to a future goal.
- Educating your customers, employees, and stakeholders.
- Getting third-party verification for your claims.
Greenwashing and insurance
With the heightened focus on greenwashing from regulators and increasing litigations, including from private class actions, businesses need to employ sound risk management when it comes to climate-related liability risks.
KPMG recommends:
- Maintaining a robust ESG governance program that embeds ESG considerations into new and existing risk management procedures and controls.
- Implementing educational programs to upskill the board, management and professionals on the fundamentals of ESG, including related risks and opportunities.
- Staying abreast of the changing regulatory landscape.
- Scenario planning for potential greenwashing risks.
- When in doubt, following the mantra, “Do what you say, say what you do”.
Businesses should talk with their EBM Account Manager about the types of liability insurances that may offer protection. Your broker can work with you to identify the climate-related risks facing your business and discuss how covers including directors’ and officers’ (D&O), professional indemnity (PI), product and public liability (PPL), and specialist policies such as environmental pollution insurance (EPI, also known as environmental liability insurance) may respond.
