Regulatory Reporting on ESG Matters and the First Greenwashing-Related Cases

  • Market Insight 15 July 2022 15 July 2022
  • Global

  • Energy & Natural Resources

The European Union has made environmental, social and governance (ESG) issues cornerstones of its regulatory regime in recent years. The EU’s Sustainable Financial Disclosure Regulation (SFDR), which followed the Non-Financial Reporting Directive (NFRD), was passed earlier this year. NFRD came into effect in all EU member states in 2018 and spells out how firms must report non-financial information to investors

These two pieces of legislation are the current centerpieces of the EU’s ESG disclosure obligations. The NFRD requires publicly held firms to report non-financial ESG performance criteria, as well as to issue principal adverse impacts (PAIs). The SFDR lays down sustainability disclosure obligations regarding investments for end-investors in financial markets. The EU appears poised to double down on this strategy of mandated corporate sustainability reporting, with the Corporate Sustainability Reporting Directive (CSRD), which extends both the scope and rigour of the NFRD and could be adopted by the end of 2022.  


In May, the Financial Accounting Standards Board (FASB) in the USA, decided to add a project to its technical agenda on the recognition, measurement, presentation, and disclosure requirements for companies that participate in compliance and voluntary programmes that lead to the creation of environmental credits. The credits include, but aren’t limited to, those created under compliance programmes, such as cap and trade and baseline allowance programs, as well as renewable energy credits and certificates, renewable identification numbers and carbon offset credits, according to a summary posted to the FASB website. The SEC has also recently proposed new rules on the language a mutual fund can use to describe itself as eco-friendly.


In the UK, for financial years starting after 6 April 2022, the Task Force on Climate-Related Financial Disclosures (TCFD) based reporting will be mandated for more than 1,300 of the largest UK-registered companies and financial institutions. These include many of the UK’s largest traded companies, banks, and insurers, with large private companies caught by new rules as well. Additional detail, such as assets under management shown at product level, is also required from 1 January 2022.  Similar to the requirements of the US SEC, additional data sourcing and improvements will continue to be a challenge for TCFD reporting. As a result, many companies are transitioning their ESG data and reporting teams into Finance so that the same rigour can be applied to these metrics as to the reporting of financial information and disclosures. The Financial Conduct Authority (FCA) issued a paper on its expectations and strategy on ESG reporting and actions expected from companies regulated in the UK.

 A strategy for positive change: our ESG priorities | FCA

The Competition and Markets Authority (CMA) published a Green Claims Guide in 2021 to help businesses comply with the law and it is carrying out a review of misleading green claims this year and says it will take action against offending firms.

Sustainability agreements and competition law - GOV.UK (

The Green Claims Code checklist - GOV.UK (


In June, the newly-elected Australian Government announced that it would be introducing standardised and internationally–aligned reporting requirements for climate risks and opportunities, for large organisations. The details of the mandatory reporting reforms, including which organisations will be caught by the new reporting regime, have not yet been disclosed. This announcement follows an extensive review in 2021 by the Australian Securities and Investments Commission (ASIC) into climate risk disclosure by Australia’s listed companies. ASIC has also identified greenwashing as a focus area and in June ASIC released an Information Sheet for superannuation (pension) and managed funds as to how they can avoid greenwashing when offering or promoting sustainability-related products. Following a ‘greenwashing’ review of superannuation and investment products AISC has recommended a focus by issuers on clear labelling, defining sustainability terminology and explaining how sustainability considerations are factored into their investment strategy.


Legal action against greenwashing


The US Securities and Exchange Commission (SEC) fined BNY Mellon $1.5m over ESG breaches in the first case of its kind, for allegedly misstating and omitting information about ESG investment considerations for mutual funds that it managed. This is the first case where the SEC has settled with an investment adviser concerning ESG statements. The agency has increasingly been on the hunt for potential greenwashing, and it has a dedicated greenwashing task force in the agency’s enforcement division.


From July 2018 to September 2021, BNY Mellon Investment Adviser suggested in documents that all investments in the funds had undergone an ESG quality review, but the SEC found this to be misleading and inaccurate because investments held by certain funds did not have an ESG quality review score as of the time of investment. According to the SEC’s order, between January 2019 and March 2021, out of 185 investments made by a mutual fund advised by BNY Mellon Investment Adviser, 67 allegedly lacked an ESG quality review score at the time of investment, which accounted for nearly a quarter of the fund’s net assets as of 31 March 2021. The company said none of the sustainable funds that it offered were targeted by the SEC. BNY Mellon has updated its fund materials. The SEC alleged BNY Mellon Investment Adviser “failed to adopt and implement policies and procedures … to prevent the inclusion of untrue statements of fact” in prospectuses and other documents, adding that compliance staff were unaware of missing quality reviews until March 2020. The SEC said: “We allege that BNY Mellon Investment Adviser did not always perform the ESG quality review that it disclosed using as part of its investment selection process for certain mutual funds it advised”. As of 31 March 2022, BNY Mellon Investment Adviser held more than $380 billion in assets.


In April, the SEC charged Brazilian miner Vale for allegedly misleading investors about the safety of a dam before it collapsed and killed 270 people in January 2019. The SEC also charged Trevor Milton, founder of electric car company Nikola, with misleading statements



Deutsche and DWS

In separate cases spanning both sides of the Atlantic, BNY Mellon and DWS, a subsidiary of Deutsche Bank, have been accused  of exaggerating their environmental, social and governance (ESG) credentials. BNY has been fined £1.5m for the mis-statements. DWS is facing enforcement action for similar offences. It claimed it used artificial intelligence to identify companies that had climate risks when it had not done those checks.


The issue of reputational risk for firms in similar positions is significant, after reports of raids by City of London Police on the UK offices of Duetsche Bank in May 2022. The German authorities raided the German Frankfurt offices in May. It is thought that the case may impact £1tn of investment


R v Bowers and Skeene

In June, the UK Serious Fraud Office (SFO) secured the conviction of two people on three counts of conspiracy to defraud and one count of misconduct in the course of winding up a company. Mr Bowers and Mr Skeene were behind Global Forestry Investments, a fraudulent green investment scheme which scammed around 2,000 investors out of their savings and pensions. They encouraged victims to invest in three Brazilian teak tree plantations, claiming they were secure, well-managed, ethical investments that would help protect the Amazon rainforest and support local communities. In reality, little-to-nothing was happening on the ground and the pair enriched themselves with the finances they received.  During the scheme’s operation, Mr Skeene and Mr Bowers collectively withdrew around £750,000 in cash and spent a further £2 million on retail, luxury, and entertainment. Mr Skeene also used investors’ money to fund his own lavish wedding and Mr Bowers bought a Bentley Continental GT. Clyde & Co’s Rachel Cropper-Mawer was involved in the civil proceedings that led to the SFO taking up this investigation, and conducting a dawn raid on their properties.


UK Advertising Watchdog

 The UK Advertising Watchdog has taken action in respect of 16 advertising campaigns that exaggerated their company’s green credentials. In 12 months to march 2022.



Private legal challenges by investors in relation to greenwashing have already started in Australia. For example, the Australian Centre for Corporate Responsibility (ACCR) is currently suing Santos, an Australian oil and gas company, over its claims that it provides clean energy natural gas and has a plan for net zero emissions by 2040. The ACCR alleges that Santos’ claims on clean energy, misrepresents the true effect of natural gas on the climate, including the large releases of CO2 and methane during extraction and burning.  The ACCR also alleges that Santos does not have a clear and credible plan to achieve net zero emissions by 2040 and that Santos’ plans to expand its natural gas operations depend on undisclosed assumptions about the effectiveness of carbon capture and storage processes. The suit, which is ongoing, alleges that these misrepresentations are in violation of Australian consumer protection and corporations laws.


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