PODCAST | The best ESG defence is a good offence

In this edition of Business Law Focus, host Evan Pickworth speaks to partners at Webber Wentzel, Sarah McKenzie and Maria Philippides, about increasing public and regulatory scrutiny of the ESG claims being made by companies.

Recent litigation is a salient lesson in risks posed by those who make misleading claims. There has been no direct or explicit greenwashing litigation in SA or ESG-related enforcement action by SA regulators, but SA legal and regulatory laws create the platform and cater for the possibility of greenwashing claims and litigation.

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One of the principal ESG-related litigation risks faced by the financial sector is the potential for inaccurate or misleading ESG disclosures, including on climate change, or “Greenwashing”. Greenwashing is generally defined as unsubstantiated or misleading claims about an entity’s environmental performance, or selective disclosure or nondisclosure about the environmental or social effects of a company’s business practices.

In other jurisdictions there has been a surge of litigation in these categories, and sometimes the regulators themselves have taken action. Recent cases include Abrahams v Commonwealth Bank of Australia, where shareholders of the Commonwealth Bank of Australia filed a complaint in 2017 against the bank for investing in coal mines; SEC v Vale, in which the SEC has charged Vale, a publicly traded Brazilian mining company, for committing securities fraud by intentionally concealing that its Brumadinho dam might collapse, and that the flow from the dam would cause significant environmental damage; and SEC v BNY Mellon, where the SEC has charged BNY Mellon, an investment adviser, for omitting or making misleading statements about the ESG investment considerations of its managed mutual funds.

Officers, directors and fund managers should focus on ensuring that ESG-related disclosures are accurate and developing robust policies and procedures to evaluate ESG-related issues.

The following recommendations could help to mitigate these risks:

• Ensuring that governance and oversight committees focused on ESG-related topics work closely with directors and officers so that management and operational personnel remain well-informed about how these topics impact corporate decision-making.

• Financial institutions should: (i) make every attempt not to over-claim climate actions the company is taking towards net-zero (or other) commitments; and (ii) review ESG disclosures with marketing, scientific and legal teams to avoid publishing potentially misleading information.

Like all claims based on misrepresentation, the truth is the best defence. If a company can support concrete statements with concrete sustainability efforts and firm data, it is more likely to be able to neutralise and defend potential greenwashing claims.