Super Green or Super Misleading? The Federal Court takes on Mercer’s ESG claims

The case highlighted the issue of greenwashing, where Mercer Superannuation was found guilty of making misleading environmental claims about its “Sustainable Plus” investment options.

‘Greenwashing is a concern for both consumers and business. Consumers are often unable to determine the veracity of a product's green credentials, reducing their confidence in the market. And businesses incurring the costs of genuine environmentally friendly manufacturing processes face unfair competition from those businesses making misleading green claims within incurring the same costs’. - ACCC, 2024.

Climate awareness and general consumer demand for environmentally friendly and sustainable products has surged in the wake of global warming concerns. Indeed, the 2022 EY Future Consumer Index reported that nine out of ten Australians and New Zealanders care about sustainability when consuming goods and services. In response, a flood of products falsely claiming to be eco-friendly, sustainable, and zero-carbon, have infiltrated the market.

Greenwashing describes the practice of making false or misleading environmental claims, allowing companies to present themselves as more eco-friendly than they actually are; garnering social approval and, importantly, financial benefit. In fact, a 2021 global review of randomly selected websites found that up to 40% of green claims could be characterised as ‘misleading’ consumers. In Australia, greenwashing is primarily addressed through existing laws related to false, misleading, or deceptive conduct, corporate disclosure obligations, and unsubstantiated representations.

The Australian Securities and Investments Commission (‘ASIC’) reaffirmed that greenwashing would comprise a core enforcement policy in 2024. Indeed, Deputy Chair Sarah Court highlighted that ASIC is “taking matters to court and pursuing higher penalties than ever before. In delivering against our priorities this year, we took action against some of Australia’s biggest corporations. And we are not deterred from taking challenging cases where legal outcomes are not guaranteed.”

Thus, the Federal Court’s recent finding in Australian Securities and Investments Commission v Mercer Superannuation (Australia) Limited 2024 [FCA] 850, that Mercer Superannuation (‘Mercer’) made false or misleading representations about the sustainability of its superannuation investment options, constitutes a landmark case for the broader regulatory agenda aimed at combating greenwashing within the financial sector. The court's findings centre around Mercer’s false marketing assertions on the availability of ‘Sustainable Plus’ investment options targeted at ‘those who are deeply committed to sustainability’ by ‘excluding investments’ in sectors related to gambling, tobacco, oil tar sands, coal mining, and Russian enterprises. Importantly, these statements were displayed on Mercer's website, in addition to videos published on Vimeo and YouTube from 12 November 2021 to 1 March 2023.

These representations were deemed false due to six of the seven investment options available involving direct investments in related companies. Ultimately, it was ruled that Mercer's failure to adequately implement managing systems to ensure environmental, social and governance (ESG) claims to consumers were true, in disregard of their access to regular reports from which to determine where the investment portfolio derived profit. Justice Horan’s order for Mercer Superannuation to pay a pecuniary penalty of $11.3 million signals the importance of companies ensuring that environmental claims are clear, specific and substantiated.

As international regulators, including the UK's Financial Conduct Authority and especially Australia's ACCC, ramp up efforts to combat greenwashing, financial entities are under additional pressure to adopt robust frameworks to substantiate and transparently disclose their ESG-related commitments. Therefore, the Federal Court's decision against Active Super underscores ASIC's commitment to upholding integrity and transparency in Australia's financial sector serves as a pivotal reminder for all financial entities to uphold rigorous standards in ESG disclosures, ensuring that statements made to the public accurately reflect their investment practices and commitments to sustainability.

Contributors - Rosemary Kanan Partner, Dispute Resolution & Litigation and Lily Kitteringham, Associate, Dispute Resolution & Litigation

For more information please contact: Rosemary Kanan at Deutsch Miller

About Deutsch Miller:

As Alliott Global Alliances’s law firm member representative in New South Wales, Australia, the team at award winning Deutsch Miller combines technical excellence, first class service and a practical, commercial approach to legal issues, earning them a reputation as the astute choice for international and domestic clients and their advisers when they face complex, critical commercial challenges and opportunities. Read more.