Samuel Pryde and Justine Nolan
Accurate and transparent reporting of business’ impacts on climate and human rights is important. Some companies are conveying false or misleading information that portrays a company as being environmentally friendly (greenwashing) or as having a greater positive impact on human rights (bluewashing) than they actually do. Such behaviour is not only unethical, but it can also be unlawful as it can be used to deceive shareholders, consumers and the broader community.
What is greenwashing?
There is growing concern about companies miscommunicating their efforts to address their environmental footprint, whether intentionally or not, with the goal of portraying themselves as an ‘ethical’ corporation. This is ‘greenwashing’.
The Australian Securities & Investments Commission (ASIC) provides a succinct definition:
“In relation to investments, 'greenwashing' is the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical.”
ASIC emphasises that greenwashing damages investor confidence in companies espousing strong environmental values, dissuading investment in good faith ‘ethical’ companies. The term greenwashing is also applicable to public-facing brands that cultivate an environmentally or socially-conscious identity that is not reflected in their actual operations or supply chains. As FairSupply explains, greenwashing can arise from two distinct sources:
- through the release of ‘ESG-related information’ as obligated by regulations/legislation; or
- voluntarily to incentivise investment or cultivate an ‘ethical’ identity.
Examples of greenwashing range from the more obvious, such as statements made by legacy fossil fuel companies on renewable energy, to more nuanced claims such as those made by fashion brands on the degree to which their articles are recycled. Greenwashing discourse can be particularly difficult to identify but some organisations, like Good On You, evaluate companies on their ESG impacts.
A worrying counter-trend to greenwashing is ‘greenhushing’, whereby brands are transitioning to less transparency to avoid backlash. In fact, many companies are opting not to discuss environmental impacts at all, with Good On You finding that of the ‘over 4,000 fashion brands’ they assessed in 2022, ‘51% of large brands with greenhouse gas targets do not state whether or not they’re on track to meet them’.
What is bluewashing?
‘Bluewashing’ (see also ‘rightswashing’ or ‘ESG washing’) mirrors greenwashing but with the substantive claims relating to corporate social responsibility (CSR). Corporate commitments to CSR can be signal-boosted through promises like ‘slavery-free supply chains’ or commitments to global initiatives like the United Nations Global Compact (UNGC). However, studies like those conducted by Macellari et al highlight that such posturing can obscure a failure to address CSR issues present within operations or supply chains. This is particularly reflected in corporate statements made in response to legislative disclosure laws.
For example, in a co-authored report by the Australian Human Rights Institute and other organisations, a study of the second year of reporting under Australia’s Modern Slavery Act found that 56% of the commitments made by companies in their first year to tackle modern slavery remained unfilled. Companies were overclaiming and overpromising, but ultimately failing to deliver.
How are greenwashing and bluewashing linked?
The links between climate change and human rights are becoming more apparent every day. The UN Environment Programme argues that 'climate change is one of the greatest threats to human rights of our generation, posing a serious risk to the fundamental rights to life, health, food and an adequate standard of living’. This interconnection between human rights and the environment was solidified in July 2022 when the UN General Assembly adopted a resolution declaring that the right to a clean, healthy and sustainable environment is a fundamental human right. The UN Human Rights Committee (overseeing the International Covenant on Civil and Political Rights (ICCPR)) has also recognised the interlinkages between climate impacts and human rights. In September 2022, the Committee published its groundbreaking decision of Daniel Billy et al v Australia, which established that Australia was in breach of the ICCPR, notably its failure to take adequate steps to reduce its greenhouse gas emissions adversely impacting the rights of Torres Strait Islanders.
Crucially, there is a social justice element to the relationship between climate and human rights. Climate change has and will continue to have a disproportionate impact on the Global South. This is due to multiple reasons. Global South nations may not have the same economic capacity to implement the mitigation or adaptation measures advocated by the Global North. Additionally, many of these nations are situated in regions that will function as the ‘canaries in the coal mine’ for the effects of climate change. This is already being demonstrated by atoll states like Tuvalu.
In the last few decades there has been increased attention paid to the role and responsibility of corporations in addressing climate and human rights issues. As SOMO highlights, it has been an approach of ‘growth at all costs’ that has facilitated these concerns. For example, public companies account for ‘40% of all greenhouse gas emissions’ and of the 27 million estimated to be working in forced labour, more than 80% are working in supply chains of global companies. As such, there is an ever-growing push for environmental, social and governance (ESG) accountability that links climate and human rights impacts.
The term ESG was first used in ‘Who Cares Wins’, a report published by the UN Global Compact, which made the case that embedding ESG factors can lead to better outcomes for business and the broader society. In the past decade, there has been a significant increase in ESG disclosure requirements for business but while the ‘E’ (for example valuating companies on their toxic waste emissions) or the ‘G’ (for example, vulnerability to fraud and corruption), are more clearly defined, the ‘S’ has proven to have less clarity.
A developing shareholder and stakeholder consciousness of environmental and social impacts has increased the demand for corporations with strong ESG records. While this can be attributed to the rise of the ‘ethical investor/consumer’, Paul Rissman explains that investing with reference to a company’s ESG record can reduce risk, as companies may be subject to stock declines due to lawsuits arising from breaches of human rights/environmental protections. Additionally, the adverse environmental impacts of companies may harm future economic conditions. Despite this, some conservative lawmakers in the US have sought to curtail ESG investing, contesting that it fails to focus exclusively on the best interest of the corporation, or that it is a tool of radical progressive activism.
While a strong ESG strategy may benefit both the company and its brand, there is mounting criticism that:
- some companies are being deceptive in conveying their ESG impacts; and
- that current approaches to measuring and grading such impacts (ESG scores; ESG indexes etc.) overstate performance.
There can be a tendency for companies to evaluate “what is most convenient, not what is most meaningful”.
Can companies be penalised for greenwashing and/or bluewashing?
In Australia, ASIC is taking action to enforce penalties against those companies whose greenwashing statements veer into the territory of misleading or deceptive. This is a legal standard and therefore a statutory threshold needs to be met. ASIC has made the current legal obligations quite clear:
“The Corporations Act 2001 (Corporations Act) and the Australian Securities and Investments Commission Act 2001 (ASIC Act) contain general prohibitions against a person making statements (or disseminating information) that are false or misleading, or engaging in dishonest, misleading or deceptive conduct in relation to a financial product or financial service (e.g. sections 1041E, 1041G and 1041H of the Corporations Act, and sections 12DA and 12DB of the ASIC Act).”
Additionally, ASIC also outlines how disclosures made for ‘sustainability-related products’ must be compliant with section 1013D(1)(l) of the Corporations Act on disclosures relating to ‘labour standards or environmental, social or ethical considerations’.
ASIC’s efforts to address these issues were bolstered by a AUD4.3 million investment by the government to monitor suspected greenwashing. Accordingly, they have conducted surveillance of managed funds and ESG disclosures, in addition to addressing any reports forwarded. Actions against greenwashing enforced by ASIC include ‘corrective disclosure outcomes’ (in which the misleading statement was corrected), the issuance of penalty notices (these involve a monetary penalty but not an admission of guilt) and in rare circumstances, court-based civil penalty proceedings. As of May 2023, ASIC has issued 11 infringement notices and brought civil proceedings against Mercer Superannuation – the first of its kind. In the case of Mercer, the company made representations about their ‘ethical’ investment options that ASIC allege were ‘misleading’. This is based on the fact that these options included fossil fuel extraction, gambling and alcohol companies. The case is set to be heard on 7 December 2023.
Is the renewable energy transition at risk of greenwashing and bluewashing?
One of the key areas in which there is a high risk of greenwashing is in the clean energy sector and the uptake of new technologies framed to help mitigate greenhouse gas emissions. There are obvious examples. A study found that legacy fossil fuel companies like BP and ExxonMobil are increasingly mobilising language in disclosures that indicate support for climate science and clean energy. The study indicates that these statements are largely comprised of future-facing commitments and pledges, but there appears to be limited accompanying action to realise this commitment. Furthermore, the continuing behaviour of these companies contradicts their promises. While vague platitudes on climate science or empty pledges to decarbonise may not strictly amount to misleading or deceptive conduct, they do presage an issue with misrepresentation within the clean energy transition.
The risks of greenwashing by companies involved in or adjacent to the renewable energy transition range from the obvious to the obscure. Cut-and-dry examples, such as superannuation companies misrepresenting the degree to which their funds contribute to fossil fuels, belie a more complicated – and contradictory – reality: many of the supply chains for critical minerals essential to renewable energy technologies are littered with environmental and human rights abuses. A report published by Jubilee Australia highlights this contradictory reality. Minerals like lithium, copper and cobalt – all essential to the production of electric vehicle batteries – necessitate mining practices that are both detrimental to the environment and to nearby communities. For example, lithium extraction in Australia is highly water-intensive and is often conducted in already arid regions. Manganese – used in batteries, solar towers and wind turbines – can cause local pollution and negative health effects when mined.
How is bluewashing relevant to the renewable energy transition?
The transition to clean energy also raises the risk of companies minimising social and governance issues, whether intentionally or not. Multiple human rights issues populate the supply chains of critical minerals and materials essential to renewable energy, including modern slavery and child labour. The rush to a ‘clean energy’ transition may result in companies minimising or deliberately overlooking human rights abuses resulting in a bluewashed supply chain.
For example, the mineral mica will be an essential component of emerging technology due to its capacity to insulate heat, resist significant voltages, and be significantly light and flexible. For these reasons, the mineral has been extensively utilised as an insulation material. As a report by SOMO highlights, this is particularly the case in electronics (ie. computer parts) and electrical technology, which comprise 26% of the total-end usage of mica. Electronic applications include computer circuit boards, sensors and lithium-ion batteries, all of which are currently used in the automotive industry or will be central to the shift to electric vehicles.
At the core of the human rights issues associated with mining for mica is the prevalence of illegal mining operations in certain nations. This issue is particularly prevalent in countries like India and Madagascar where the regulatory framework and government resources to prevent such activities are weak. Additionally, SOMO argues that the majority of the mica mines operating in India are illegal. The operations of these mines, typically on the periphery of the state and with limited oversight, are more likely to become sites of serious concern for exploitation and rights abuses.
There is also a growing acknowledgement of the risk of modern slavery in the clean energy sector, and recognition of how such a risk undermines the goal of a ‘just transition’. Several reports have noted the presence of modern slavery in wind, solar and battery supply chains (see for example: Clean Energy Council; University of Nottingham Rights Lab).
For example, almost 50% of all ‘solar-grade polysilicon’ is sourced from Xinjiang. China dominates the solar panel supply chain, and some 45% of the world’s polysilicon is produced in the Xinjiang region, which has large reserves of silica and ready availability of inexpensive power thanks to sizeable coal fields and government subsidies. However, a series of reports have associated Xinjiang with widespread human rights abuses (See OHCHR; Murphy and Elimä) and in particular, polysilicon production with allegations of forced labour imposed by the Chinese state on members of the Uyghur minority.
There are emerging initiatives to address modern slavery risks in supply chains. In August, the NSW Office of the Anti-slavery Commissioner published a discussion paper on a Code of Practice regarding slavery in the renewables sector.
Greenwashing and bluewashing appear to be on the rise. It weakens trust between business and its external stakeholders, like consumers and investors. While recent regulatory responses to clamp down on it are promising, it is clear that every element of ‘ESG’ must be closely examined when assessing the promises of ‘ethical’ companies.
Samuel Pryde is a research associate and Professor Justine Nolan is the director of the Australian Human Rights Institute at UNSW Sydney.