Nobel-winning economist Joseph Stiglitz says Australia needs stronger laws around greenwashing – the practice of advertising or promoting a product or service as more environmentally friendly than it is.
Speaking at a panel in Melbourne last week, Stiglitz said Australians have a role to play in tackling the climate crisis through their consumer power – from their investment choices to the everyday things they buy – but, to exercise this power, "they have to have good information".
Stiglitz explained that, even when the law does require companies to disclose information about their carbon emissions, they "don't want to raise their hand and say, 'yeah, we're really bad'. They're going to try to disclose that information in ways that you can't understand".
On every gas pump they should have a picture … showing what the gas that you're buying is doing to the planet Earth
Nobel-prize winning economist Joseph Stiglitz
Stiglitz compares the disclosure of environmental harms to the evolution of messaging on cigarette packaging. When cigarette companies were initially compelled to disclose harms on packaging, you would see small print saying 'this may not be good for your health'. Now, however, most countries "want a picture that tells you very forcefully what it does," says Stiglitz.
"On every gas pump they should have a picture … showing what the gas that you're buying is doing to the planet Earth," he says.
Joseph Stiglitz talks greenwashing.
Stronger enforcement needed
Stiglitz says the invisible nature of carbon emissions in particular make it hard for consumers to properly assess green claims.
"When you buy a table or a refrigerator you get to see whether it works or not, so you can make a judgement about whether they are telling you a lie," he says.
"You're not seeing those CO2 molecules ... you can't see what they're actually doing," says Stiglitz. "This is a fundamental problem that makes greenwashing so easy. It's so hard to tell whether it's occurred."
Stiglitz argues that disclosure laws alone are not enough. They need to be enforced.
Greenwashing a priority for ASIC
ASIC has said greenwashing is currently a priority area for them. They define it as "the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical".
They have taken three cases to the Federal Court against superannuation and investment companies for misleading green claims. They have also issued infringement notices to six companies for concerns over alleged greenwashing.
The Federal Court ordered Mercer Superannuation to pay $11.3 million as a penalty for misleading statements they made about their investment options
Most recently the Federal Court ordered Mercer Superannuation to pay $11.3 million as a penalty for misleading statements they made about their investment options. Mercer ran a "Sustainable Plus" option which had investments in 15 fossil fuel companies, 19 gambling companies and 15 alcohol companies. All of which Mercer said were excluded in statements on their website.
"This was ASIC's first greenwashing case brought before the Federal Court; a landmark case both for ASIC and for the financial services industry. It demonstrates the importance of making accurate ESG [environmental, social and governance] claims to investors and potential investors," ASIC deputy chair Sarah Court says.
Polly Hemming, Senator Sarah Hanson-Young and Joseph Stiglitz in conversation.
Greenwashing undermines trust
Stiglitz spoke alongside Senator Sarah Hanson-Young and The Australia Institute's Polly Hemming. Hanson-Young, who is chairing the Senate Inquiry into Greenwashing, says Australia has to catch up to our international counterparts and indicated the final report from the inquiry would recommend action on greenwashing that follows actions already taken by the European Union.
Consumers want better choices, says Hanson-Young. For example, they might choose to buy 50% recycled bin liners to feel they're doing something for the environment.
"However – and we've got this through our inquiry – chances are that 50% is bogus," says Hanson-Young.
Stiglitz says that greenwashing not only causes harm to the environment but that false claims "undermine trust in society".
Civil suits play a part in enforcement
When governments don't have the resources to carry out inspections, "the eyes of the whole society" can help hold companies to account, says Stiglitz.
"You need more eyes than just the government," he says. "That's where, I think, NGOs, civil society, and class action suits become very important."
In 2022, gas giant Santos was taken to court by a shareholder advocacy group, the Australasian Centre for Corporate Responsibility, for allegedly making misleading and deceptive claims about its carbon emissions.
In April this year, the government introduced legislation that would make climate-related disclosures mandatory. However, they have also proposed a three-year period restricting civil litigation against those disclosures.
Stiglitz says this is a bad idea because it is "one of the most important enforcement mechanisms"."That three-year moratorium is like tying your hands," he says.
Stock images: Getty, unless otherwise stated.
