Santos goes through the Greenwashing spin cycle and comes out clean

The Federal Court of Australia has dismissed proceedings brought by the Australasian Centre for Corporate Responsibility (ACCR) against Santos Limited, in which the ACCR alleged that Santos had engaged in conduct that was misleading and deceptive or likely to mislead or deceive in relation to climate and emissions-related representations. The proceedings concerned alleged “greenwashing” in Santos’ public disclosures and were brought under the Corporations Act 2001 (Cth) and the Australian Consumer Law (ACL).

Background to the Santos proceedings

ACCR, a not-for-profit shareholder advocacy organisation, commenced proceedings in 2021 alleging that Santos had contravened section 1041H of the Corporations Act and sections 18 and 33 of the ACL.

The ACCR challenged the following key sustainability-related claims made in Santos' 2020 Annual Report, 2021 Climate Change Report and 2021 Investor Day Presentation:

• first, that Santos was a producer of "clean energy" and that natural gas provides "clean energy", and further that "blue" hydrogen – hydrogen produced by burning natural gas, which Santos intended to produce – is "clean" and "zero-emissions".

• second, that Santos had a "clear and credible" transition plan to achieve its stated Scope 1 and 2 greenhouse gas (GHG) emissions reduction targets – to reduce Scope 1 and 2 GHG emissions by 26-35% by 2030 (2030 Target) and achieve "net zero" Scope 1 and 2 emissions by 2040 (Net Zero Target).

The ACCR alleged that these claims were misleading because:

• Santos' net zero strategy relied heavily on carbon capture and storage (CCS) and blue hydrogen technologies (technologies that ACCR argued were unproven and would not be technically or commercially viable as a means of capturing Santos' future Scope 1 and 2 emissions);

• its targets did not account for additional Scope 1 and 2 emissions associated with its proposed CCS and blue hydrogen production plans or expected hydrocarbon growth and exploration opportunities beyond 2025;

• its transition plan lacked substantiated evidence, and depended on undisclosed and unreasonable qualifications and assumptions; and

• it failed to account for the full lifecycle emissions associated with natural gas when claiming it to be a clean fuel, and with blue hydrogen when claiming it to be a clean and zero emissions source of energy.

The Court rejected all of ACCR’s claims and ACCR was ordered to pay Santos' costs.

Context and target audience are relevant when assessing "greenwashing" claims

The Court found that when assessing greenwashing risks under the ACL, the impression conveyed by a term or statement must be assessed having regard to the ordinary and reasonable members of the target audience and the full context in which the term or statement appears.

It held that the target audience of Santos' claims was a large and diverse group of investors with different levels of sophistication, knowledge and expertise and, given all the surrounding context including Santos' accompanying disclosures about its reliance on offsets, would understand Santos' use of terms such as “clean energy” and “clean fuel” were:

• comparative and did not convey that natural gas had no GHG emissions but produces fewer GHG emission compared to coal and diesel;

• not claims of environmental neutrality, particularly in light of Santos’ express disclosure of Scope 3 emissions and future transition strategy; and

• aspirational in that they represented future aims, rather than present and absolute claims of minimal or no GHG emissions.

That audience would also understand that Santos' use of “clean”, “zero-emissions” and “carbon neutral”, when describing "blue" hydrogen, refers to "net" rather than absolute zero GHG emissions and, at the relevant time, these terms were used interchangeably by industry and government to refer to hydrogen produced from natural gas with CCS and offsets for residual emissions.

The Court found that the reasonable member of the target audience would have understood these terms in that context, and Santos' conduct was not liable to mislead.

Reasonable grounds are required for climate targets and transition plans

Emissions reduction targets and transition plans are representations as to future matters which must, assessed objectively, be based on reasonable grounds at the time they are made. If there are not reasonable grounds, then such claims will contravene the ACL and/or Corporations Act.

The Court accepted that Santos’ 2030 Target and Net Zero Target had a reasonable factual and strategic foundation. The Court found that Santos' targets were based on assumptions that were supported by feasibility work, identified sub-projects and expert evidence, and also that the language used by Santos conveyed achievability rather than certainty. The Court accepted that long-term transition strategies inherently rely on uncertain and disparate data and necessarily involve relying on external assumptions about future technological, regulatory and market conditions. That means they cannot be expected to be completely precise years in advance.