GCs are key to reducing the boards fear of greenwashing

A flurry of environmental litigation cases accusing companies of “greenwashing” to conceal emissions or climate inaction has created a fear of litigation in the boardroom according to this excellent article in the Financial Review, which we will summarise below. In house lawyers can help their companies alleviate this fear by helping them genuinely comply with their climate pledges.?

In the space of a few months worries about reputational risk and a bit of financial risk have become all about litigation risk, says PwC ESG leader Jon Chadwick.

This fear is being realised across the world. Santos, the Australian oil and gas producer, faces a Federal Court challenge brought by an activist group which alleges it has breached corporation and consumer law by claiming to produce clean energy and having a pathway to reach net zero emissions.?

In Australia, a Commonwealth Bank shareholder has commenced action to access documents relating to the bank financing oil and gas projects despite their potential to breach the Paris Agreement.?

This is all driving calls for a single set of sustainability reporting standards and a single internationally recognised framework to reduce the risk of businesses falling below rapidly evolving community expectations.?

As Dan Gocher of ACCR explains, the lack of standards and enforcement when it comes to climate pledges has allowed companies and investment funds to greenwash their social and environmental impact. They can exaggerate claims with little to no consequences.?

The law is emerging as a way to remove ambiguity.? Ashurts global co-head of energy, Paul Curnow says greenwashing is more prevalent in the past partly due to this risk of climate litigation. He lists other reasons as new standards coming through, greater understanding of fiduciary obligations and shareholder activism. In house lawyers can help companies navigate through these potential risks.

There is a major step forward as the EU taxonomy is likely to influence monitoring, disclosure and enforcement activities by regulators in many jurisdictions. The consolidation of the Climate Disclosure Standards Board and Value Reporting Foundation into the IFRS at COP26 marked a step towards the establishment of common standards to support regular reporting and consistency.?

Jon Chadwick of PwC observes that a lot of greenwashing conversations are happening as part of financing negotiations; as companies go looking for capital they want to make commitments to access funding that is being directed to green assets.?

Responsible Investment Association Australasia head of policy and standards, Nicolette Boele, says “The wool had come off people’s eyes on net zero 2050 being enough. When we start talking about 2030 targets, which is really the game now, that’s two business cycles,”.? Nicolette continues “The solution is aggressive transparency which puts the power of the information in everyone’s hands and allows people to make their own choices about whether it smells right to them.”?

It is clear therefore that General Counsel and their legal teams are key to reducing the fear that boards have of being accused of greenwashing.?