ESG Litigation: a case of Active Greenwashing

By Dalitso Banda Thomas Coltrona

10 June 2024

The recent decision of the in Australian Securities and Investments Commission v LGSS Pty Ltd [2024] FCA 587 (LGSS) provides an example of successful regulatory enforcement action against greenwashing and contains valuable learnings for all businesses in terms of how they conduct their ESG practices.

Greenwashing in Focus

In July 2023, as part of Bennett’s ongoing ESG Litigation series, we wrote about the growing importance of ESG performance for businesses for attracting customers and investors, which has led to some businesses engaging in greenwashing or greenhushing.¹ Given these practices mislead customers and investors as to a business’ true ESG credentials, they continue to be an enforcement priority for the Australian Securities and Investments Commission (ASIC) and the Australian Competition and Consumer Commission.²

In LGSS, ASIC alleged that the defendant, as trustee for the Active Super (or Local Government Super) superannuation fund (Active Super), contravened sections 12DB(1)(a) and 12DF(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) by making false or misleading representations to members and potential members of the fund about their “green” or “ESG” credentials. In other words, ASIC alleged that Active Super engaged in greenwashing.

The Representations

At the time of the relevant period the subject of the proceedings, Active Super was an open superannuation fund, meaning that it invited any member of the public to invest with them.³ Active Super managed approximately $13.5 billion in superannuation assets for around 89,000 members.⁴

Active Super held itself out as being committed to ESG factors in investment decision making, including through marketing on its website and social media, publication of its “Sustainable and Responsible Investment Policy” (SRI Policy), publication of an annual investments impact report, publication of product disclosure statements and through public statements of its executives.⁵

ASIC alleged that, by the actions listed above, Active Super made representations that it would not make or hold certain amounts of investments in companies relating to gambling, tobacco, Russia, oil tar sands projects and coal mining, but that it did in fact make investments contrary to these representations.⁶

The Findings of the Court

ASIC argued and lead evidence showing multiple examples of how LGSS made assertions as to its investment practices contrasted with what it actually did.

Ultimately, the Court found that Active Super had contravened the ASIC Act in relation to its conduct in making representations as to its investment practices concerning investments in gambling, coal mining, Russia and oil tar sands other than those contained in the SRI Policy.⁷ In other words, the Court found that Active Super’s investment practices, in the large part, did not match up to the ESG type statements it was providing to current and potential investors. However, it is notable to examine how the Court reached this conclusion.

In respect of each area of representations, the Court considered each statement of Active Super relied on by ASIC individually, not as a whole, on the basis of what an ordinary reasonable consumer would understand the statements to mean.

From this, the Court derived the representations that arose from each statement and examined any tensions between the statements. For example, the Court considered, and rejected, the argument by Active Super that the ordinary reasonable consumer would read any of the gambling representations as being the subject of potential qualification by its SRI Policy, as there was nothing in the representations themselves that indicated the possibility that they were qualified.⁸

Although the Court did not find Active Super made misleading representations in relation to its investment practices concerning tobacco, the Court considered that reliance on the external ESG research provider (MCSI) definitions as to what constituted a tobacco supplier was not of assistance to the Court. The Court held that the relevant question was not how MCSI defined a tobacco company or manufacturer, but what an ordinary reasonable consumer would understand those terms to mean as they appear in the tobacco statements relied upon by ASIC.⁹

The Court then considered whether individual investments, or acts taken, by Active Super were contrary to the representations such that they were misleading and/or deceptive. Based on arguments advanced by Active Super, the Court also considered whether the representations were with respect to future matters, and therefore whether there was evidence to demonstrate that there were reasonable grounds for making the representations. This argument was also rejected by the Court because Active Super could not produce evidence as to the grounds that were relied upon for the making of the representations.¹⁰

The Court will make orders for penalties in due course.

The Learnings

What LGSS demonstrates is that greenwashing enforcement is now a priority for regulators such as ASIC and the ACCC.

However, the case provides lessons and learnings for all companies, not just those that make investments. The principles arising from LGSS are equally applicable to trading businesses in relation to claims they may make about their ESG practices concerning their products or services in Australia. The law on misleading and deceptive conduct under the Australian Consumer Law would equally apply to companies not covered by the ASIC Act.

A company will not avoid enforcement action by surrounding its assertions and commitments with unclear qualifications.

It is not enough to simply rely on an external ESG research company’s assessment. The Court will look at and assess the evidence of the Company’s conduct to assess the impact of that conduct on the target audience (for example what an ordinary reasonable consumer would understand a particular representation to mean).

Accordingly, when preparing any statements or disclosures, businesses should carefully examine their current practices to determine whether these statements or disclosures are accurate at the time or, if they relate to what the business intends to do in the future, that there is evidence to demonstrate reasonable grounds for making them.

Put simply, LGSS demonstrates that a company will be found to be engaging in active greenwashing if their words do not match their deeds.

1. ESG Litigation Series: Damned if you do, damned if you don’t: What is ‘Greenhushing’ and why it won’t save companies from ‘Greenwashing’ – Bennett (bennettlaw.com.au)
2. ASIC enforcement priorities | ASIC; Compliance and enforcement priorities | ACCC.
3. Australian Securities and Investments Commission v LGSS Pty Ltd [2024] FCA 587 (LGSS), [17].
4. LGSS, [18].
5. LGSS, [30]. 
6. LGSS, [30].
7. LGSS, [237]. 
8. LGSS, [114]-[118]. 
9. LGSS, [178] – [181]. 
10. LGSS, [230]-[233]. 

Disclaimer: The information published in this article is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.