Greenwashing - avoiding the legal landmines in transition to net zero statements

This short paper is my thoughts on the matter of perceived or accused “Greenwashing” related to energy use and the transition to net zero emissions for businesses in Australia. These thoughts are not meant to represent the views of my esteemed legal colleagues (or imply any legal advice). They are not directly related to any greenwashing case that I am currently involved in or that are currently in the courts.

Public Statements

In the transition to net zero emissions businesses 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

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 net zero statements being overtly challenged as to their veracity. Statements are tested for their ability to be implemented and deliver the targets 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 achievable by the dates described (eg “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 like to see evidence/research which demonstrates that the statement was indeed (legally) reasonable to make when it was issued.

Dangers of jumping the gun

Many businesses are understandably eager to communicate that they can reach some form of net zero very quickly. In their enthusiasm, they can underestimate the nature of the task and how long it will actually take, and how much it could cost. By making overly-ambitious announcements, they risk closing off less adventurous or elaborate but nonetheless effective pathways to reducing carbon emissions in reasonable timelines.

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.

There is a balance between making statements that are intended to meet expectations or impress stakeholders and the ability to prove that they can be actually implemented.

Testing technical details and cost forecasts

The issue of technology development and forecasts of actual costs are often very 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 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.

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.

Think it out

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.

Many 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.

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.

Footnote

The benefit of the first few greenwashing cases will be the development of case law and the forensic testing of various approaches, assumptions, and Statements. Some of this will also flow into statute law over time.