As more businesses promote their Environmental, Social, and Governance (ESG) attributes, we are seeing increased accusations of greenwashing – the misrepresentation of environmental responsibility.
COSBOA recently weighed into the argument at a Senate inquiry into greenwashing with a position of cooperative mitigation.
The organisation is pushing for the creation of a regulatory framework that fosters fair competition and checks potential malpractice. It recognises the significance of ESG regulations on environmental and social spheres, and it endorses tougher enforcement of laws against misleading environmental claims.
In its submission to the senate inquiry COSBOA stated: “Small businesses often struggle with challenges such as insufficient information to verify green claims from manufacturers and larger businesses, and a lack of resources to adhere to ESG standards. They require support to combat these issues effectively.”
The Australian Securities and Investment Commission (ASIC) has also chimed in.
ASIC’s submission states: “There are general prohibitions against misleading and deceptive statements and conduct.
“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.”
COSBOA has argued that while ASIC is becoming more stringent on enforcing regulations, it still has an education over enforcement focus.
What should be done?
COSBOA is looking for the establishment of a detailed ESG certification system that resonates with international standards and reflects the unique Australian circumstances.
In addition, COSBOA recommends that government-sponsored awareness initiatives be set up to enhance small business operators' comprehension of these regulations. They also suggest the formulation of explicit marketing rules.
Lastly, the organisation emphasises that penalties should align with the severity of the greenwashing offence and that support systems should be in place for businesses to rectify their misconducts. The suggested comprehensive strategy is designed to encourage a more sustainable and just business environment.
In relation to greenwashing and its implications on Australia’s small business sector, COSBOA's primary recommendations are:
What’s coming?
The upcoming sustainability disclosure standards are set to be finalised by the International Sustainability Standards Board (ISSB) on June 30.
Earlier last year, the ISSB released two draft standards for consultation. By July 2022, ASIC, in conjunction with the Australian Council of Financial Regulators (CFR), submitted a proposal to the ISSB. This submission expressed endorsement of the ISSB's goals and provisional support for the adoption of these standards as reporting benchmarks in Australia, subject to the final version.
In addition, ASIC stated that the Treasury has been commissioned to devise a comprehensive strategy for sustainable finance. This strategy is set to incorporate a mandatory Australian climate risk disclosure framework that aligns with international norms.
The Treasury concluded its preliminary consultation round regarding these proposed actions in February 2023, soliciting initial insights on key factors for the design and application of climate reporting requisites in line with ISSB standards.
ASIC also mentioned that the upcoming ISSB standards are predicated on the framework of the Taskforce on Climate-related Financial Disclosures (TCFD). Since 2018, the corporate regulator has been urging listed companies to voluntarily report under the TCFD framework to bolster the transparency, consistency, and comparability of sustainability-related disclosures.
The corporate watchdog highlighted its public endorsement for the transition towards mandatory reporting. ASIC hinted that entities already reporting voluntarily under the TCFD framework are expected to comply seamlessly with any forthcoming reporting standards. The governmental strategy will further involve the creation of novel standards or taxonomies for sustainable investment, additional measures to counter greenwashing, and initiatives to fortify ESG labelling.