'Greenwashing’ is when an organisation misrepresents its sustainability-related risks, business credentials, strategies or those of its products or services.
It is not a new source of legal and reputational risk for business. However, with the sharp evolution of sustainability (and climate change in particular) into a material financial issue, greenwashing risk has now become an acute source of legal risk for both commercial corporations and financial institutions.

With heightened demands on corporate sustainability from both investors and customers, and elevated scrutiny from regulators and strategic litigants, an ability to navigate the risks associated with ‘greenwashing’ claims has never been more important.

Common greenwashing risks and how to best navigate them

Our guide sets out case studies and key takeaways to avoid risks across the following four main contexts of 'greenwashing'.

1. Greenhouse gas emissions reduction targets

Commercial corporations and financial institutions are scrambling to meet heightened market expectations on ‘net zero’ emissions by 2050, in line with the Paris Agreement goals. This includes setting interim targets over the short and medium-term. There is now elevated pressure to set broader nature-related targets, such as in relation to biodiversity.

Special rules apply to targets, as they are statements about a future matter. Emissions reduction targets may be misleading if they have no reasonable basis, there is no genuine intention to pursue them, or there are no credible efforts towards implementation.

2. ‘Truth to label’

Companies and financial institutions alike are being held to tighter account in their use of terms such as ‘sustainable’ or ‘green’. These have moved from being amorphous (and thus broadly defensible) to imply a more defined – and much higher – standard of conduct.
As the bar of 'sustainability' becomes higher, more specific and more measurable, 'truth to label’ is increasingly important.

3. Enterprise branding

Consumer protection regulators are increasingly scrutinising greenwashing in advertising campaigns. This includes those that seek to associate entire corporate brands with sustainable practices.

Organisations should take care to ensure that promotion of one specific aspect of a product’s characteristics or company’s sustainability credentials does not imply broader ‘green’ operation.

4. Financial reporting

Both baseline expectations and the frontier of best practice on sustainability-related financial reporting continue to elevate. Domestically and internationally, investors and value chain stakeholders are demanding better quality, comparable disclosures. This includes information on material impacts on financial prospects (in the directors’ report or Operating and Financial Review), as well as financial position and performance (in the financial statements).

Organisations should take care to assess the extent to which climate change (and other sustainability-related issues such as biodiversity loss or fresh water availability) may present material risks to their financial prospects, and the extent to which those risks should be disclosed .

Your climate risk governance journey

In a field as dynamic as sustainability and climate change, it is critical to understand not only the law as it stands, but its direction of travel. Similarly, strategy and operationalisation need to be responsive and flexible to significant uncertainties.

Whether you are at the beginning of your climate and sustainability risk governance journey, or committed to best practice, MinterEllison’s multidisciplinary team can assist with the assessment, governance & management of climate-related risks.