1. Extent of ESG Statements
The repercussions of the climate crisis are being felt on a worldwide scale, more than ever, forcing institutions and organizations to change their conventional management approaches. In fact, consumers are becoming more environmentally conscious and prefer eco-friendly products and services that support green transformation. Moreover, investors are choosing their target companies based on their environmental, social and governance (“ESG”) criteria. As we know, financial and banking institutions release ESG statements to inform the public about their green transformation efforts. The validity of this public information is critical since institutions and organizations may be accused of greenwashing.
2. Examples from International Cases Regarding ESG Statements
Certain criteria have been established to frame the ESG information that will be published by international institutions and organizations. Thus, to fight the climate crisis, states require companies to publish such information, compelling them to take appropriate action.
In Türkiye, public companies are expected to follow the Capital Markets Board’s Sustainability Principles on a voluntary basis. Since more extensive rules exist around the world, Türkiye is anticipated to take further steps in this regard. In the United States, the U.S. Securities and Exchange Commission (“SEC”) investigates and penalizes corporations that make misleading ESG statements. In March 2021, the SEC formed the “Climate and ESG Team” to examine investment advisers’ and funds’ claims and compliance statements regarding their ESG strategies.
- The SEC sued Vale in the United States, alleging that the company made fraudulent representations in its sustainability reports[1]. The case centered on the dam collapse in 2019 that claimed hundreds of lives. The mining company allegedly knew about the adverse circumstances that caused the dam to collapse but still made misleading assertions in their ESG reports. As a result of the event, the company faced penalties, including an interim injunction and fines, losing more than $4 billion in market value.
- The SEC also investigated and fined BNY Mellon Investment Adviser Inc. (“BNY”), alleging that the company made false claims and was negligent in its investment decisions for several of its investment funds with regard to Environmental, Social, and Governance (ESG) issues.[2] To reduce the penalty, BNY agreed to pay an administrative fine of $1.5 million. In the investigation carried out from July 2018 to September 2021, it was found that contrary to the facts, BNY implied and stated that all investments in its funds had passed a quality review for ESG. It was discovered that no review was undertaken during investing in the relevant funds. At the end, BNY did not accept and/or reject the findings of the SEC but faced penalties such as ceasing relevant actions, being condemned, and paying a $1.5 million administrative fine.
- In Italy, the ruling regarding a dispute between two companies for allegations of greenwashing is noteworthy since it is the first of its kind.[3] In a lawsuit brought by a corporation against a competitor, the Italian Court granted an interim injunction and ordered the defendant to stop making “vague, misleading, and non-verifiable environmental claims”. The lawsuit was brought by Alcantara S.p.A., a manufacturer of a micro-fiber product used in the automotive industry, against Miko S.r.l. (“Miko”), one of its Italian competitors that markets a suede-like microfiber product. In the proceedings, Miko was accused of making “green claims” to market products with eco-friendly features, such as “made of recycled polyester”, “environmentally friendly”, “natural choice”, “eco-friendly microfiber”, “the first and only microfiber that guarantees environmental sustainability throughout the productive cycle”, “the first sustainable and recyclable microfiber”, “100% recyclable”, “100% recyclable at the end of its lifecycle”, “reduction of energy consumption and GHG emissions by 80%”, “reduction of carbon footprint through polyester recycling”, “absence of harmful substances”, “use of non-harmful dyes”, and “use of neutral and non-toxic dyes”. The Court held that these statements were vague, generic, false, and non-verifiable, requiring their removal from the company’s website, social media platform, TV advertisement, any magazines, and other promotional material. Miko was also ordered to publish the Court’s decision on its website for 60 days. As a result, for the first time in Italy, the court ordered a company to stop making “green claims” at the request of one of the company’s competitors.
- As evident from the examples above, a company’s reputation may be harmed by inaccurate claims and/or implications in ESG statements. Therefore, when companies promote their products with misleading claims and make statements in that direction to achieve short-term profits from green transformation, they risk damaging their brand and losing earnings as well as customers.
- In March 2022, the SEC proposed that companies should provide detailed statements about their environmental efforts. Thus, companies submitting periodic reports to the Commission will need to extend and clarify their climate-related statements. To this end, companies will be required to publish information such as their measurement of greenhouse gas emissions within scope 1 and scope 2, their climate transition plan and climate targets, and how their board manages the risks associated with the climate crisis. These standards mean a broader adoption and implementation of environmental measures.
3. Conclusion
Eco-friendly ESG strategies allow institutions and organizations to enhance their profitability while fighting against the climate crisis in the long run. Investors and customers now pay attention to environmental, social and governance criteria, holding companies accountable for their ESG statements.
Therefore, institutions and organizations must refrain from making false statements in this regard to eliminate negative consequences. Since international regulations serve as a reference for national legislation, the relevant institutions and organizations should keep up to date with the latest regulations to be ready for future requirements.
Sources:
- SEC, Press Release, 2022-72 (https://www.sec.gov/news/press-release/2022-72)
- SEC, Press Release, 2022-86 (https://www.sec.gov/news/press-release/2022-86)
- Clifford Chance, 13.01.2022
[1] SEC, Press Release, 2022-72 (https://www.sec.gov/news/press-release/2022-72 )
[2] SEC, Press Release, 2022-86 (https://www.sec.gov/news/press-release/2022-86 )
[3] Clifford Chance, 13.01.2022
