Page 10 - Luce 2024

Point of View

For example, entities will be affected by the ‘physical risks’ greenwashing in their report on the subject. Instead,
of climate change. These include short term climatic changes they said that ‘[by misleading the public to believe that
and other long-term shifts in weather patterns such as a company or other entity is doing more to protect the
increasing floods, fires, storms, cyclones, droughts and so on. environment than it is, greenwashing promotes false
solutions to the climate crisis that distract from and delay
Entities will also be affected by ‘transition risks’. These are concrete and credible action’.
risks that will come from social and economic shifts towards
a low-carbon economy. They can include policy and Other academic authors like Sebastiao Netto et al. have
regulatory risks, technological risks, market risks, reputational focused on the ‘how’ of greenwashing. They argue that
risks, and legal risks. greenwashing can occur through ‘selective disclosure’
(where entities do or do not provide information),
Climate change also poses a ‘systemic risk’ to our social, ‘decoupling’ (where entities commit to ‘symbolic
political and economic system. Systemic risks are associated environmental protection behaviours’ but do not actually
with failures of companies, industries, financial institutions, follow through on these) and ‘signalling and corporate
or an entire economy. Think about COVID-19, for example. legitimacy theory’ (where entities make claims to enhance
Risks of this type flow through to businesses and financial their legitimacy).
institutions.
In addition, and more relevant to my expertise as a lawyer,
The relationship between business and climate change is greenwashing has lacked a clear legal definition. By a
now widely accepted legal definition, I mean the elements that would need to
While this recognition that entities will be impacted by be proved to substantiate enforcement action by financial
climate change is now considered orthodox, this was not regulators in Australia like the Australian Competition and
always the case. The turning point in this regard was a Consumer Commission (ACCC) and the Australian Securities
speech given in 2015 by the then Governor of the Bank of and Investments Commission (ASIC), as well as claims by
England, Mark Carney. In this speech he made it clear that civil society groups and private individuals. In this regard,
climate change will lead to significant financial crises and the ACCC and ASIC have offered general definitions of
falling living standards unless more is done to ensure that greenwashing.
companies and financial institutions take action.
For example, the ACCC’s guidance on the topic says that
After Carney’s speech, an industry-led initiative called the it ‘considers a business will be engaging in greenwashing
‘Taskforce on Climate-related Financial Disclosures’ (TCFD) where they use any claim that makes a product, service or
developed a voluntary framework for entities to disclose their business seem better or less harmful for the environment
climate-related risks and opportunities. than it really is’. ASIC has defined greenwashing as ‘the
practice of misrepresenting the extent to which a financial
This initiative has been transformative. Today there are product or investment strategy is environmentally friendly,
nearly 5000 supporters of this framework. It has been further sustainable or ethical’.
elaborated by the IFRS (International Financial Reporting
Standards) Foundation, the highly regarded accounting While in other work I have discussed a possible legal
standards board. Countries like Australia are now making it definition of greenwashing in more depth, I will skip
mandatory for companies and financial entities to disclose the analysis to just say that greenwashing can arguably
their climate risks and opportunities. be defined as conduct (acts or omissions) that has some
connection to sustainability and that conduct is actually or
The idea behind climate-related disclosures is simple. If likely to be misleading or deceptive, or otherwise false, as to
businesses and financial institutions disclose their climate- its impact on sustainability matters.
related risks and opportunities, the assumption is that they
will take action to transition towards a clean energy future. At its core, greenwashing is about preventing harm to the
market system and market participants caused by companies
While it is possible to question this assumption underpinning and financial institutions misrepresenting their environmental
disclosure frameworks, it is in this broader context of how credentials.
entities are impacted by and contribute to climate change
that greenwashing has become a source of concern. Increasing enforcement action to ‘crack down’
on greenwashing
But what actually is greenwashing? I noted above that greenwashing is becoming an issue of
Companies and financial institutions are responding to increasing concern to policymakers, regulators, civil society
demands from investors, governments, civil society and and others. Legal interventions to address greenwashing,
others for action on climate change. But this has led to therefore, are becoming more and more common.
allegations of greenwashing.
This should come as no surprise. In the criminal law space,
The first point to note here is that greenwashing itself does for example, rising crime rates, or a perceived rise in crime,
not have one single, widely accepted definition. is often associated with claims that the authorities ought to
‘crack down’ on offenders.
For example, the United Nations Secretary General’s High-
Level Expert Group, established to prevent greenwashing In terms of the actual number of cases, the Australian
in non-state entity’s net zero pledges, did not define and Pacific Climate Litigation database run by Melbourne

10 LUCE Number 22 2023