By Mahek Panjwani
For decades, company environmental marketing claims were largely governed by the court of public opinion. If a company overpromised on its environmental credentials, it faced a public relation crisis or a consumer boycott. However, today the situation has changed due to the Australian Securities and Investments Commission (ASIC) making the exaggeration and misrepresentation of a company’s environmental, social or governance (ESG) practices (commonly known as ‘greenwashing’), unlawful. This has transformed greenwashing from a marketing-related risk into a significant litigation risk.
Australia has emerged as a major battleground for ESG related disputes. For corporate directors and legal practitioners alike, the question is no longer how to market environmental goals but how to defend those claims as per the misleading and deceptive conduct laws.
I GREENWASHING LITIGATION
Greenwashing litigation currently operates across two interconnected areas, (A) public enforcement by regulators and (B) strategic lawsuits brought by activist groups.
A Public Enforcement By Regulators
ASIC and the Australian Competition and Consumer Commission (ACCC) have both made ESG enforcement a regulatory priority. As a result, the Federal Court of Australia has imposed multi-million-dollar penalties on institutions who have been found liable for misrepresenting their ethical and sustainable investment practices. These Court penalties, in some instances amounting to $12.9 million[1], $11.3 million[2] and $10.5 million,[3] send a clear message that companies using green credentials to attract capital without implementing the backend compliance required to back them up will be severely penalized by courts.[4]
B Lawsuits Brought By Activist Groups
At the same time, activist groups are using litigation not for a hefty financial payout but to ensure that corporations are within their legal boundaries. The Australasian Centre for Corporate Responsibility v Santos Ltd[5] was the first major case to judicially test the integrity of a company’s net-zero roadmap. In this case, the Australasian Centre for Corporate Responsibility (ACCR) challenged Santos’s representation that natural gas was a clean fuel and that their 2040 net-zero targets were backed by a credible plan[6]. The Federal Court dismissed ACCR’s claim and found that, in their full context, Santos’s blueprints had reasonable ground for their forward-looking statements. ACCR v Santos Ltd illustrates that in the eyes of the law net-zero claims are not merely for marketing, they are legally binding and they should be reinforced by substantiate data, internal expert oversight and clear disclosure.
II The Dilemma
Although activist groups and regulatory authorities are currently dominating greenwashing litigation, it is only a matter of time before headlines involve shareholders class action. As per the Corporations Act 2001 (Cth) section 1041H, the Australian Consumer Law Section 18[7] and section 12DB(1)(a) and 12DF (1) of Australian Securities and Investments Commission Act 2001 (Cth), company shareholders can sue listed entities if they are misleading in their environmental disclosures and are artificially inflating the company’s share price. However, even where a shareholder’s company has misled the market, successfully recovering damages introduces a major legal hurdle for proving and quantifying loss.
Traditionally, shareholder class actions have centered around the failure of a company to disclose certain unexpected financial losses. In these cases, damages could be calculated on the basis of standard common law methods. Consequently, plaintiffs in these cases typically relied on event studies to show that when the truth is finally disclosed, the share prices drop, and the exact margin of artificial inflation is revealed. However, when it comes to greenwashing, proving the margin of inflation becomes more difficult. This is because:
- If a mining or energy corporation reveals that they have exaggerated their carbon offset, then the reaction may not occur suddenly. This is because investors often choose to invest in a company based on cashflow and commodity prices, rather than the long-term scientific precision of its 2040 roadmap.
- To prove loss under law it is important to prove the actual market value, which is derived from the company’s environmental footprints. Since there is currently no accepted legal method to quantify the financial value of carbon reduction targets, it cannot be satisfactorily proved whether the green reputation of a company has increased its share prices.
- The Federal Court in the Active Super[8] enforcement case noted that certain investors may feel harmed if they invested against their personal values, but turning that moral or ethical disappointment into a measurable financial loss is legally challenging.
As a result, investors may experience greater risks, arising from their ethical and moral values, as the current laws are still struggling to measure the financial risk and harm[9].
III Net-Zero Claims
As legal risks continue to rise, an important question emerges: are net-zero claims becoming too risky for corporations to make? The short answer is no, but it is undeniable that the legal standards governing such claims have significantly changed. The court’s decision in Santos[10] suggests that the law does not require absolute certainty for long term strategic planning. A company is still legally permitted to set ambitious targets. However, ambiguous ESG targets should be reasonable at the time of which they are being made.
The mandate related to climate-friendly financial disclosure regimes of Australia has left no room for any ambiguity[11]. By introducing sustainability reports as a mandatory component for annual financial reporting,[12] many companies are required to report detailed climate risks, governance strategies and specific metrics surrounding emissions to avoid hefty fines or litigation risks. As per the new legal standard, a company’s environmental target must be treated with the same levels of accuracy, evidence and legal review as any other financial report.
IV Conclusion
The evolution of greenwashing litigation highlights the breakdown of traditional boundaries between environmental policy, law and consumer protection. The current sustainability situation can trigger legal obligations under corporate law, consumer protection law and environmental regulations. As a result, companies can no longer allow their marketing teams to create environmental marketing narratives in isolation. Every public claim relating to clean energy, carbon emissions or net-zero targets must be supported by reliable evidence, legal reasoning, expert input and proper compliance. Compliance with the current legal system requires companies to avoid making any environmental claims unless they are prepared to defend their claims in court.
[1] Australian Securities and Investments Commission v Vanguard Investments Australia Ltd (No 2) [2024] FCA 1086 [1]-[5], [120]-[110].
[2] Australian Securities and Investments Commission v Mercer Superannuation (Australia) Ltd [2024] FCA 850[10]-[18], [78]-[84].
[3] Australian Securities and Investments Commission v LGSS Pty Ltd (No 2) [2024] FCA 665 [26]-[33], [95]-[101] (Active Super).
[4] Ibid 1[102]-[110].
[5] [2026] FCA 96 [97]-[101].
[6] Ibid [211]-[220].
[7] Competition and Consumer Act 2010 (Cth) sch 2 (Australian Consumer Law).
[8] Ibid 3.
[9] Ibid [97]-[101].
[10] Ibid 5 [97]-[101].
[11] Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 (Cth).
[12] Corporations Act 2001