Corporate Accountability: Legal Risks of ‘greenwashing’ and ‘social Washing’ in Australia

Businesses are facing increasing pressure from regulators, investors and consumers to demonstrate real commitments to sustainability and social responsibility. Many organisations are taking real steps to reduce their environmental impact and improve social outcomes. However, some risk overstepping the mark and engaging in “greenwashing” or “social washing” – making false or misleading claims about their environmental or social performance.

For legal professionals advising corporate clients, it is important to be aware of the potential legal risks associated with green and social washing practices. In light of Australia’s recent introduction of mandatory climate-related financial disclosures and increased regulatory focus on misleading and deceptive conduct, legal professionals have a critical role to play in ensuring compliance and protecting clients from liability.

Defining Greenwashing and Social Washing

Greenwashing is the act of misleading consumers regarding the environmental practices of a company or the environmental benefits of a product or service. Examples include overstating emissions reductions, promoting token recycling programs, or using vague claims such as “eco-friendly” without substantiation. 

Social washing is the act of making false or misleading claims about a company’s social impact, such as overstating its diversity initiatives, labour standards, or community engagement. Both practices can erode consumer trust, attract regulatory enforcement, and lead to class actions.

Legal Risks in the Australian Context

Australian companies risk various legal consequences for greenwashing or social washing. These can include: 

Misleading or Deceptive Conduct under the ACL 

Section 18 of the Australian Consumer Law 2010 (Cth) (ACL) prohibits businesses from engaging in conduct that is misleading or deceptive. Greenwashing may breach s. 18 of the ACL if companies make vague, unsubstantiated, or unqualified claims about their products’ or services’ sustainability credentials or social impact.

False or Misleading Representations 

Sections 29–33 of the ACL prohibit various false or misleading representations. For example, a company’s representation about goods (s. 29), services (s. 30), or its business (s. 31) must not be false or misleading. A company risks infringing these provisions if, for instance, it makes unverified claims that its products or services are “carbon neutral”.

Securities and Corporate Law Risks 

Listed companies also have obligations under the Corporations Act 2001 (Cth) to make continuous disclosure to the market of information that is material. There is also the risk of liability for misleading disclosure where, for example, a company’s information about climate-related risks is materially misrepresented or where its ESG credentials are overstated.

Regulatory Scrutiny 

Regulators such as the Australian Competition and Consumer Commission (ACCC) and the Australian Securities and Investments Commission (ASIC) are paying increasing attention to climate change and environmental and social claims, and ASIC has made clear its intention to prioritise enforcement of misleading or deceptive conduct in this area. ASIC’s recently published guidance on this topic makes clear that vague, unverified, or overly broad statements in respect to sustainability are likely to breach the law.

Mandatory Climate-Related Financial Disclosures

Australia is set to adopt mandatory climate-related financial disclosures. The government is adopting international frameworks such as the Task Force on Climate-Related Financial Disclosures (TCFD). From 2024, large organisations will have to report on climate risks and opportunities in their financial statements.

This will significantly raise the bar. Companies will no longer be able to make offhand or aspirational statements on sustainability. Disclosures will need to be specific, data-driven, and substantiated. Non-compliance will not just result in reputational damage, but regulatory enforcement and shareholder action can also be expected.

Lawyers advising clients should ensure that: 

• Climate-related statements are supported by robust data. 
• Disclosure requirements are met for both domestic law and international best practice.
• Corporate governance structures support ongoing compliance with disclosure requirements.

Strategic Advice for Lawyers

In light of these increased risks, lawyers advising corporate clients should take a proactive approach, including:

• Due Diligence on Claims: Before a company claims to be “carbon neutral” or “committed to diversity,” lawyers should insist on evidence to back up these statements, including independent verification where appropriate.
• Contractual Protections: Lawyers should advise clients to include warranties and indemnities in contracts with suppliers where sustainability claims are dependent on third party performance (e.g. where a supplier represents that it meets certain labour standards).
• Governance and Oversight: Lawyers should encourage clients to establish board-level oversight of ESG disclosures to ensure accountability and reduce the risk of non-compliance.
• Training and Culture: Training staff on what they can and cannot say in marketing materials or to investors about sustainability and social initiatives can reduce the risk of misleading or exaggerated claims.
• Ongoing Monitoring: ESG-related claims should be subject to ongoing review and updating, particularly as regulatory requirements evolve.

CPD Implications for Lawyers

For legal practitioners, the complexities of ESG regulation highlight the importance of staying up to date with professional education. Topics like climate disclosure, corporate accountability, and greenwashing are increasingly covered in Commercial Law CPD programs, equipping practitioners with the knowledge to navigate these emerging risks. Similarly, overlaps with property transactions, such as claims about sustainable buildings, are now influencing Property Law CPD offerings.

By engaging in ongoing Professional Development, lawyers can maintain the expertise needed to advise clients responsibly in this evolving area.

The risks of greenwashing and social washing are real and growing. With regulators intensifying scrutiny and mandatory climate-related disclosures on the horizon, Australian companies cannot afford to make vague or unsubstantiated claims about their environmental or social credentials.

Lawyers play a pivotal role in guiding corporate clients through this challenging terrain—ensuring claims are substantiated, disclosures are compliant, and governance structures are robust. By combining legal insight with strategic foresight, practitioners can help clients not only avoid legal pitfalls but also build genuine, sustainable, and socially responsible businesses.