Louise Tucker, South Island Regional Committee Member and Area Manager for the South Island at AECOM, shares her insights on avoiding financial, legal and reputation-damaging consequences of greenwashing in our business transactions.
Like many other sectors, the property sector is becoming increasingly conscious of buzzwords and lingo touting environmental and sustainability benefits. Developments promoted with these benefits often demand a higher price than those without. In 2021, the PCNZ reported that the property industry accounted for 15 per cent of Aotearoa’s total GDP*, and our country’s built environment is responsible for up to 20 per cent of the country’s carbon footprint**. We need to reduce the environmental impact of what we do and take greater care with the environmental and sustainability claims we make.
By being more alert to “greenwashing” claims in the property sector and our supply chains, we can avoid the risk of being misled or misleading others with unsubstantiated claims in our business transactions and avoid serious financial, legal, and reputation consequences.
What is Greenwashing?
Greenwashing is the use of environmental, social, and governance (ESG) communications, words, or images that are misleading, unsubstantiated, or selective, leading to the risk of litigation, reputation damage, and a loss of trust.
You may have seen promotional materials including phrases such as “low carbon”, “net zero by 2040”, “climate-friendly” or “eco-friendly”, and there are many others. They are potentially greenwashing because they are vague, have no singular definition, or don’t specify what type of emissions are being considered in the “net zero” case. Claims without evidence-based science and appropriate disclosures of assumptions and limitations can amount to “greenwashing”.
ESG communications may be deliberately misleading at worst or, at best, well-meaning strategic aspirations that don’t translate into tangible deliverable, measurable ESG outcomes.
Regulatory Drivers and Responses
The standards for honest and transparent labeling and promotion materials have risen. Consumer protection regulators such as Te Komihana Tauhokohoko Commerce Commission New Zealand, and environmental activists are scrutinising “green” advertising and promotional material with the same level of scrutiny applied to financial statements. To support the business community, Te Komihana Tauhokohoko The Commerce Commission New Zealand produced “Guidelines for Green Marketing” in 2008. While this was the foundation for better practice in 2008, the world has changed markedly since then, and new terminology has evolved. The Commerce Commission has since followed up with educational materials for businesses under the Fair Trading Act, noting that environmental claims can be a powerful marketing tool, and businesses are increasingly using environmental claims as a point of difference from their competitors. All traders, large and small, need to ensure their environmental claims are substantiated, truthful, and not misleading to avoid breaching the Fair Trading Act.
In July 2023, the Australian Securities and Investments Commission initiated a greenwashing case against Vanguard Investments Australia, alleging misleading conduct in relation to claims about certain ESG exclusionary screens applied to investments in a Vanguard fund. ASIC allegiations include Vanguard making false and misleading statements and engaging in conduct liable to mislead the public in claiming that all securities in the Vanguard Ethically Conscious Global Aggregate Bond Index Fund (Hedged) (Fund) underwent screening against certain ESG criteria. The Fund was marketed to investors seeking, amongst other things, securities with an ethically conscious screen. Vanguard claimed the Index excluded issuers with significant business activities in a range of industries, including those involving fossil fuels. ASIC contended that the screening and research undertaken on behalf of Vanguard was far more limited than that being promised to investors, and it constituted an example of ‘greenwashing.’ Fines have been issued along with three infringement notices, and the resulting publicity has significantly harmed Vanguard’s reputation in the financial investment sector.
Consumers are also showing an increased interest in life cycle (“cradle to grave”) claims, and the property sector may need to take care with maketing developments that are “made with renewable energy”, “sustainable materials” or where there are “carbon offsets” or “carbon neutral”. General claims of carbon neutrality could be misleading if the claim only relates to one aspect of a good or service, for example, to carbon produced during construction, but not to its ongoing occupancy and maintenance.
Interestingly, the European Union (EU) is planning to ban claims such as “climate neutral” and “eco” unless companies can prove their accuracy. They also plan to outlaw claims on carbon neutrality that are based on emissions offsetting and green labels that do not come from approved sustainability programs. These rules are expected to come into force by 2026, and from past experience, what happens in the EU will flow this way eventually, as seen with other climate change related regulation, such as the Climate Change Act 2019 and the establishment of a Climate Change Commission.
The insurance sector, locally and internationally, is feeling the pressure of catastrophic climate change-related events. The scale of claims from the significant number of recent damage-causing events to the property sector are driving up insurance rates. Insurers are considering risk-based pricing for commercial businesses, especially for flood risk. Taking practical steps to mitigate premium cost risk, such as highlighting the measures your business is taking to become more climate resilient, will be critical to obtaining insurance and negotiating premium and excess levels. A level of due diligence in the risk assessment and application of risk mitigation measures is needed to ensure that accurate and truthful claims are made, conditions or qualifications are articulated and that the mitigations are not aspirational “greenwashing” but are substantiated with evidence and information on how they will be achieved.
Nature-based solutions and green infrastructure are also emerging trends in land development. The green infrastructure approach considers conservation values and actions related to land development, growth management and built infrastructure planning. The use of nature-based solutions could provide an adaptive and effective way to build resilience in future developments, making them more desirable to the market. From the Auckland floods in late January 2023, Tāmaki Makaurau saw 249mm of rainfall in over 24 hours. A number of recently completed residential developments, which incorporated integrated water sensitive designs featuring controlled pooling or directed flow away from houses, fared a lot better than developments in older known flood-prone zones. As older areas of Tāmaki Makaurau come up for redevelopment, it will be important that the climate change vulnerabilities are understood. These areas should be redeveloped in an integrated way to minimise climate change risk and any “green” claims about the redevelopment, for example, including nature-based stormwater management, are not misleading about the limits of performance or qualifications about how it is designed to work.
There is also an increasing use of Environmental Product Disclosures (EPD) that quantify environmental information on the life cycle of a product to enable fair comparisons between products fulfilling the same function. The EPD’s are independently verified by qualified specialists and registered, There is a growing resource base of EPD’s related to construction sector materials that provide reliable evidence needed to avoid potential “greenwashing”.
Some guidance on how to avoid the “greenwashing” trap:
- Ensure the accuracy and truthfulness of your claims, supported by credible evidence. Avoid exaggerating benefits or concealing important information, considering not only legal but also reputation impacts. For example, claiming that offsetting has a ‘positive’ environmental impact when no effort is being made to reduce overall carbon emissions. Keep your information current, as claims may become inaccurate and outdated over time.
- You must have “reasonable grounds” for making a claim. “Reasonable grounds” means having evidence, research, test results, or similar credible information to demonstrate a solid factual foundation for the claim. The context and circumstances are important, however, factors such as relevant codes and standards or practices that have been complied with or research, as well as any limitations undertaken may be important. If you use these in your communications, keep records and copies of information you rely upon and put in place a process of fact-checking prior to publication. Where you can, make this information publicly available to ensure transparency.
- Explain any conditions or qualifications of your environmental claims. When assessing the claims of others, do your due diligence. Statements that refer to scientific proof, such as “independent tests prove”, should substantiated by reliable and credible scientific evidence. You should not rely on anecdotal accounts, assumptions, or unsupported opinions to validate your claims.
- Avoid exaggerating and using broad or unqualified claims and adopt clear, easy-to-understand language.
- Avoid using images that appear to be trust marks or symbols used in nature-based imagery, such as leaves, the planet and the colour green.
- Take care with selecting carbon-neutral certification or offsetting schemes – they are not all equal. Look for accredited certification schemes and local offset sources if you need to offset.
- When expressing your aspirational goals, ensure you are clear and accurate about the status of your sustainability transition. Consider providing third-party verified approaches, such as Green Star. Provide information on how the goals will be achieved.
This article highlights general guidance about avoiding “greenwashing” claims in business transactions. Ultimately, refrain from making environmental or sustainability statements about your products or practices unless you are certain of their accuracy and do your due diligence when assessing the claims made by your supply chain partners and others you depend on.
Area Manager, South Island, AECOM
Louise is based in Christchurch, New Zealand. She is a chartered consulting engineer with a background in the buildings and transport sectors and has a passionate interest in sustainable and resilient infrastructure. After 13 years in Melbourne Australia, she returned to Christchurch in 2021. While in Melbourne she worked on major rail projects including the Melbourne Metro tunnel project. The experience gained was invaluable to her current role leading the South Island operations for AECOM, engaging with a variety of clients across the energy, environment, transport, water and built environment sectors.