Climate Change: Australian Energy Companies Exposed to Litigation, ASIC Enforcement and Shareholder Resolutions in relation to Greenwashing
They say that if you fail to plan then you plan to fail. It is becoming increasingly clear that companies will find themselves in hot water if they don’t have a documented plan in place to support future climate related projections or if they don’t have a proper basis for making statements or reporting on their climate change initiatives and environmental credentials. Companies need to expect to be called out if they don’t have a climate change plan and, if they do have a plan, be ready for both their past climate change statements and future projections to be scrutinised and challenged by shareholders, activists and Government regulators.
In our earlier publications, we’ve covered the rise and significance of climate change litigation and regulatory enforcement on companies in Australia and beyond (see the Related articles below). Following on from that coverage, the increased activity we’ve seen at the end of 2022 and start of 2023 demonstrates that climate change is now a permanent feature of the Australian corporate landscape, and its prominence, relevance and importance for Boards of listed and unlisted companies will continue to increase throughout the year.
The activity we have seen recently in Australia includes the following:
In late 2022:
- The Australian Securities & Investments Commission (ASIC) announced taking its first action for ‘greenwashing’ against listed energy company Tlou Energy Limited.
- ASIC says greenwashing is ‘the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical’.
- ASIC fined Tlou Energy Limited by issuing four separate infringement notices for contraventions of section 12DB (false or misleading representations) of the ASIC Act 2001.
- The company agreed to pay the fines without admission of liability or penalty.
- ASIC’s infringement notices (each dated 18 October 2022) can be found here, here, here and here.
- The Australasian Centre for Corporate Responsibility (ACCR) amended its court documents in Federal Court litigation against Santos Limited to rely on additional documents sent by Santos to shareholders in 2020 and 2021:
- ACCR is suing Santos on the basis of statements and omissions alleged to have been made in Santos’s 2020 Annual Report, a 2020 Investor Day Presentation and a 2021 Climate Change Report.
- ACCR is seeking declarations of misleading or deceptive conduct; an injunction prohibiting Santos from engaging in the same conduct in the future; and an injunction requiring Santos to issue a corrective statement.
- Santos has amended its Statement in Response to address these additional documents and the litigation continues.
- It is of interest that the Counsel team acting for the ACCR includes Mr Noel Hutley SC and Mr Sebastian Hartford Davis, who have previously worked with the Centre for Policy Development to publish a Memorandum of Opinion on “Climate Change and Directors’ Duties” (here). That opinion has attracted widespread support from Australian regulators (link), and given the authors of that opinion are now Counsel in the ACCR v Santos litigation, the case will be closely followed by many, including both regulators and industry.
In January 2023:
- ASIC announced that it had fined Black Mountain Energy by issuing three separate infringement notices for contraventions of section 12DB (false or misleading representations) of the ASIC Act 2001.
- ASIC announced that greenwashing would be one of its Enforcement Priorities for 2023
- The ACCR announced that major institutional investors in Australia, Europe and the UK had co-filed a shareholder resolution with Glencore PLC.
- The ordinary resolution titled ‘Projected Thermal Coal Production’ seeks to include additional information and explanations in Glencore’s Climate Action Transition Plan to be presented at Glencore’s 2024 Annual General Meeting.
- The information sought includes disclosure of how Glencore’s thermal coal production aligns with the Paris Agreement’s objective of keeping global temperature increase to 1.5°C, as well as details of how Glencore’s capital expenditure allocated to thermal coal production aligns with the Paris Agreement’s objective.
This recent activity re-enforces the need for companies with operations in Australia to give focussed attention to the accuracy and basis of their climate and environment-related disclosures. In this regard, ASIC has issued guidance on “How to avoid greenwashing when offering or promoting sustainability-related products”, which includes a reference to the globally recognised and adopted Recommendations of the Task Force on Climate Related Financial Disclosures (TCFD). We have also identified particular risks and the duties of Directors in the Related articles linked below.
We have only seen the beginning of what is likely to be a wave of new regulatory enforcement both in Australia and internationally. Against this backdrop, companies operating in Australia must ensure that claims relating to the environment and sustainability are accurate, scientifically sound and appropriately measured and evidenced.