A rise in climate-related litigation in Australia, mirroring trends seen in overseas jurisdictions, has underlined the growing need for insurers to address the emerging challenge facing them and their clients, according to Hicksons Lawyers.

Insurers in particular need to be aware of potential greenwashing, especially when it comes to net zero commitments and climate policies, the law firm says.

Greenwashing, as defined by the Australian Securities and Investments Commission (ASIC), refers to the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical.

“One area of risk when it comes to potential greenwashing is when businesses make statements about their net zero and climate or ESG targets either without having a proper understanding of the scope of their statements or without substantiating those statements with documentation and action that reflects what is being communicated,” Hicksons Lawyers Partner Persia Navidi says.

Australian businesses need to therefore clearly identify what their climate commitments relate to, she tells insuranceNEWS.com.au.

“Does the climate commitment relate to the business operations only? Or does it extend to companies in their chain of command? This needs to be clarified by companies in their marketing material and public statements about net zero and other commitments,” she said.

One of the most prominent litigation cases involves energy giant Santos and was filed in August last year in the Federal Court by the Australasian Centre for Corporate Responsibility, a shareholder activist group.

The activist says the company’s claims that natural gas provides “clean energy” and that it has a “credible and clear plan” to achieve net zero emissions by 2040 constitute misleading or deceptive conduct under the Corporations Act and the Australian Consumer Law.

Ms Navidi says the lawsuit against Santos is potentially a “test case” and if it goes to judgement, it will “likely provide guidance on what not to do”.

The Law Society of New South Wales says in a paper the lawsuit against Santos is a test of the litigation risk arising from a net zero commitment.

“There are signs that greenwashing claims will continue in coming years in Australia, and focus on individual directors as well as corporate entities,” the law society says in the paper, Climate Change Litigation, in November last year.

And with ASIC and other regulators having already signalled greenwashing is a focus for them this year, insurers and their clients do need to understand better the potential risk they face, according to Ms Navidi.

“It’s certainly something that insurers and their clients should be mindful of,” Ms Navidi said. “ASIC has made it very clear that it's an area of focus for them.

“So I think that’s an indication to insurers, to their insureds, to companies that it’s not something to ignore. They need to be checking their policies and statements and making sure that they’re protecting themselves and making sure that if there is something that’s been disclosed to the market - this is for publicly listed companies obviously - that it’s accurate.”

Ms Navidi, who recently joined Hicksons Lawyers, focuses particularly on risks relating to climate change including the management of litigation and cybersecurity.