In the first article of the series, which explored ‘What greenwashing risks mean for the legal profession’, we outlined the key principles that legal and risk management professionals are to follow to mitigate such risks. These include:

In this article, we take it a step further, delving into the best practices and reviewing real-life case studies for two of the principles: (1) making accurate and truthful claims, and (2) explaining conditions and qualifications to sustainability-related assertions. We also highlight how adopting globally recognized reporting frameworks, such as the GRI Standards, can help businesses to enhance transparency, reduce the risk of greenwashing, and improve stakeholder trust.

Making accurate and truthful claims

When making any environmental claims, businesses should ensure that:

It is imperative that marketing materials and ESG disclosures provide or direct consumers to the evidence that backs up the claims made, especially for any comparative statements - like ’greater energy savings’ or similar. Here, clear and transparent communication plays a key role, helping to prevent consumer misinterpretation.

Case study: UK Advertising Standards Authority (“ASA”) ruling on Wizz Air

Allegations: By stating that it is ’one of the greenest choices in air travel’, Wizz Air, a Hungarian airline, has violated UK advertising rules.

Basis for ruling: Although the airline provided evidence for the claim made, the advertisement itself did not include sufficient information for consumers to analyze it or compare the claim with those made by competitors.

Wizz Air’s defense: For their defense of the statement, Wizz Air submitted documentation proving that the airline:

Counter-arguments: The ASA acknowledged that the claim was based on the type of aircraft used, and the carbon emissions per passenger measured in carbon emissions per number of seat kilometers flown by paying passengers. However, the issue was that the company did not include that same information in the advertisement itself, and the evidence was only produced in response to the investigation.

Outcome: In the end, the advertisement was prohibited, and Wizz Air was warned to ensure that any environmental claims made in the future are transparent, include verifiable evidence and provide sufficient information for consumers.

Explaining conditions or qualifications to sustainability-related assertions

To minimize the risk of making any misleading or ambiguous claims, companies should:

Both of these considerations should be integrated into due diligence and compliance processes in order to prevent misstatements.

Case study: Australian Securities and Investments Commission (ASIC) versus Vanguard Investments Australia Ltd.  (Vanguard) [2024] FCA 308

Allegations: By overstating the ESG screening process for its Ethically Conscious Fund, Vanguard has allegedly misled investors and violated Australia’s financial services law.

Vanguard’s representations to the public: Vanguard made the following statements to potential investors that were deemed to be false or misleading:

Findings: In broad terms, Vanguard’s representations were viewed by ASIC to be false or misleading because:

Outcome: Vanguard was penalized A$12.9 million. Mitigating factors, including self-reporting and corrective actions, reduced the original penalty of A$21.6 million initially sought by ASIC.

A key takeaway from this example is that any aggravating and mitigating factors must be included in the company’s internal compliance systems, ensuring that appropriate measures are in place for disclosures to accurately reflect the ESG characteristics of products and services. That way, issues can be identified and addressed quickly.

The fact that Vanguard received a 25% discount on the penalty because the company self-identified and self-reported the issue, as well as cooperated promptly and constructively with the ASIC investigation and court proceedings, demonstrates the value of ensuring that authorities are promptly alerted should an incident occur. The organization also needs to be able to demonstrate its remedial efforts effectively.

The role of sustainability reporting and GRI Standards

As illustrated, both case studies highlight the importance of transparency, accountability, and verifiability of ESG claims. Sustainability reporting - especially when aligned with globally recognized reporting standards such as GRI’s - provides a structured approach to achieving these goals.

How international standards, such as the GRI Standards, add value:

Transparency sets the conditions for long-term success

By embracing internationally recognized standards, such as the GRI Standards, businesses can also build credibility, avoid pitfalls, and contribute to a more sustainable and transparent marketplace. As the regulatory landscape around greenwashing continues to tighten, organizations that prioritize credible and evidence-based sustainability reporting will be better positioned for long-term success.

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Authors:

Elsa Chen, Partner (Chief Economist), Allen & Gledhill LLP, and Dr. Allinnettes Go Adigue, Director of GRI ASEAN