How will this end? Lessons (so far) from the ACCR v Santos greenwashing case

The Federal Court (the Court) recently handed down its judgment in Australia’s first greenwashing case, testing net-zero assertions made by companies. It found representations regarding “clean energy” and statements made as to Santos Ltd’s targets for net-zero were not misleading. The Court dismissed the Australasian Centre for Corporate Responsibility (ACCR)’s claim and awarded costs against it.

ACCR has since filed an appeal, stating the judgment warrants clarification as it sets the bar for corporation communication about climate commitments “well below market and investor expectations”. 

Summary of the decision

The ACCR, a shareholder advocacy group, alleged that global energy company Santos made misleading and deceptive representations regarding their plan to (1) reduce greenhouse gas (GHG) emissions by 2030 (2030 Target) and (2) achieve “net zero” Scope 1 and 2 GHG emissions by 2040 (Net Zero Roadmap or Roadmap) (together, Targets) in contravention of sections 18 and 33 of the Australian Consumer Law (ACL) and section 104H of the Corporations Act.  The ACCR argued these Targets were misleading as Santos lacked reasonable grounds, and that they omitted the offset-generating activities associated with Targets. The alleged representations supporting the Targets include those:

• in the Annual Report which stated that the natural gas it produces is a “clean fuel” and provides “clean energy
• in the Investor Day Presentation about “clean” and “zero emissions hydrogen 
• that sought to convey that the Targets were credible and achievable, and that Santos was upgrading its “aspiration” to a “target”
• where it identified a series of steps sufficient to achieve the 2030 Target and Net Zero Roadmap and 
• that refer to “reductions” in emissions, when Santos instead intended to offset by use of carbon credits.

The Court found in each instance that Santos did not make statements or representations that were misleading or deceptive. 

Reasons for judgment 

In assessing ACCR’s claim, the Court had to determine whether the representations as to future matters were made on reasonable grounds. Prior to making this determination, it had to consider:

• whether these were future matters; and
• the target audience of the alleged representations.

The evidence in the proceedings included statements about the “ambitious” and “realistic” roadmap to net-zero emissions by 2040. The Court concluded  the statements conveyed that the Targets were characterised as future matters. [AD1.1]The Court also found that the target audience of Santos’ representations comprised a diverse and large group of investors. These investors would have had sufficient interest in anthropogenic climate change and global warming, but were not assumed to have scientific training. They would understand there is an energy transition, and, notably, understand that long-term strategic objectives may be achieved in a variety of ways. They were also characterised as expecting Santos to adapt to technological developments in the area and have some degree of familiarity with the relevant presentation and reports.

The ACCR argued that the alleged statements about natural gas as “clean fuel” and “clean energy” in the 2020 Annual Reportwere misleading as they conveyed that natural gas does not have an adverse effect on the environment or that its extraction does not release GHGs. The Court found that the context in which these statements were made did not convey this because, for example, “clean” in the report conveyed that natural gas was cleaner than heavier emitting fuels, such as coal. Similarly, a reasonable person in the target audience who was familiar with the reports and presentation would understand that consumption of natural gas emits GHG.  

Similarly, when considering the alleged misrepresentations in the 2030 Target and the Net Zero Roadmap, the Court looked into the context of Santos’ representations and how they would be assessed by the target audience. The Court agreed with Santos that they did not represent to commit to undertake “inflexible steps” to achieve the targets. The Court accepted that these objectives were necessarily subject to uncertainties and contingencies.  The Court therefore found that a target audience would understand “realistic and doable” or “clear and credible” are, “measured descriptors setting expectations lower than certainty”. 

Comment

Santos’ success was due to its ability to demonstrate that the Targets were reasonable. The Court accepted that strategies such as those subject to this proceeding include a degree of uncertainty which the target audience appreciated.

It is clear that the courts will not take a rigid interpretation of statements or representations made by companies. They will consider representations in the context made. However, this will not absolve statements and/or representations made with absolute language. Companies must ensure that statements, representations and/or targets are accurate, based on contemporaneous evidence and are subject to a reasonable basis. If statements to the effect of guaranteeing the reaching of a target is made, with the realistic likelihood of achieving that target being contradicted by available evidence, the court will likely find these statements to be misleading.  

The Court made it clear that terminology utilised for emissions targets and plans must also be carefully considered and applied appropriately. As the technologies and research into this industry continue to evolve, so do the meanings of key terms. Use of such terms should align with industry understandings of that term. Companies need to be adaptive and tailor terms to the interested reader to avoid breaches. Targets need to include qualifications and context to avoid being misleading or deceptive.

The decision is also informative for directors and officers, in terms of the Court’s approach both concerning their general directors’ duties and Australia’s new mandatory climate reporting legislation that commenced on 1 January 2025 for larger entities. The legislation extends further on 1 June 2026 to include mid-sized and smaller entities. Representations in climate reporting, especially on future matters, must be made on reasonable grounds failing which directors can be liable for a breach of duty.  Directors ought to review the robustness of their climate reporting systems and processes particularly given Australian regulators’ increasing focus on greenwashing.

Santos will not be the last climate related action by a private applicant or activist against a listed company. This judgment has set out clear guidelines for companies to avoid a finding of misleading or deceptive conduct. It has also set the bar for private applicants or activists seeking to pursue climate-related disclosures and emissions targets claims against listed entities. Such applicants will refine their claims and find another target to pursue such claims. Companies should take the opportunity to review their climate targets and the basis of those assumptions.