The Reputational Risks of Greenwashing

When new climate reporting standards came into force in New Zealand in October 2022 they were seen as a significant move towards greater transparency and accountability in climate-related disclosures. 

Some commentators observed that the standards would help address the risk of “greenwashing” - the practice of making false or misleading claims about the environmental benefits of a product, service or company practice.

The Aotearoa New Zealand Climate Standards (NZ CS) mandate that Climate Reporting Entities (CREs) disclose detailed climate-related information annually. CREs include large, listed companies with a market capitalisation exceeding $60 million and large financial entities with total assets exceeding $1 billion. 

Approximately 200 entities are expected to report under the standards which apply to reporting periods beginning on or after 1 January 2023. Because most companies have balance sheet dates of 30 June, the main reporting season takes place in August. At that point, stakeholders will be able to scrutinise CREs’ formal reporting on the ways in which they are directing capital towards activities that support a low-emission, climate-resilient future for the first time. 

A common-sense rule for managing trust and reputation is: “if you can’t back up a claim with facts, don’t say it”.  The introduction of the NZ CS will give teeth to this practical guidance by providing a formal reporting framework that mitigates against the reputational risk of greenwashing the impact of climate-related actions and investment.  

It is a progressive step towards mainstreaming environmental, social, and governance (ESG) reporting. Key benefits include:

• Improved comparability and consistency: a standardised framework ensures disclosures are consistent across organisations and sectors, facilitating better comparability
• Enhanced risk management: organisations must disclose their governance, strategy, and risk management processes concerning climate change, promoting more robust internal controls and procedures 
• Alignment with international frameworks: the standards align with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, placing New Zealand in line with global best practice
• Promotion of sustainable investment: transparent disclosures help investors make informed decisions, steering capital towards sustainable investments
• Driving organisational change: the reporting requirements encourage organisations to integrate climate considerations into their strategic decision-making processes
• Influencing best practice: by conforming with the NZ CS, CREs will set the bar for smaller entities’ voluntary reporting efforts

Directors are pivotal in ensuring the integrity and accuracy of climate-related disclosures, and that sustainability claims are genuine and not misleading.  

The formal consequences of greenwashing include legal and financial penalties under the Fair Trading Act, with fines of up to $600,000 for companies, and up to $200,000 for individuals. 

The Financial Markets Authority oversees compliance with climate reporting obligations and can take regulatory action against misleading disclosures.

Beyond legal repercussions, greenwashing can lead to severe brand damage and loss of public trust, which can take years to rebuild.

Two recent issues in New Zealand illustrate the reputational impacts of making climate-related declarations that do not withstand public scrutiny.

In March 2024, Christchurch Airport ceased describing itself as “climate positive” following a complaint to the Advertising Standards Authority that its claims were misleading. The controversy arose because its emissions calculations did not include flights in and out of the airport. Technically, these are not classified as controllable emissions. However, even though it might have been factually accurate, the perception arose that Christchurch Airport’s claim was not credible and that it was greenwashing.

Late last year, Consumer NZ, the Environmental Law Initiative and Lawyers for Climate Action NZ, lodged a claim with the High Court seeking declarations that Z Energy had breached the Fair Trading Act by misleading New Zealanders with its public messaging. This is the first such greenwashing case in New Zealand, and likely to be closely watched as it makes its way through the court process.

The nub of the claim is that Z Energy’s public statements and advertising have created the impression it is reducing its emissions and working at pace to mitigate its contribution to the climate crisis. When Z Energy cites ‘ambitious emissions reduction targets’, it is talking about its own operational emissions, such as company cars and electricity use. Its reduction targets do not include the emissions from the fuel it sells – the largest source of its emissions.

The new XRB climate reporting standards mark a significant shift towards greater accountability in New Zealand’s corporate landscape. By fostering genuine and transparent climate-related disclosures, directors can safeguard their organisation’s reputation and contribute to New Zealand’s goal of achieving net zero emissions of greenhouse gas emissions by 2050.