Santos successfully defends ACCR greenwashing allegations

The Federal Court this week released its judgment in the ACCR v Santos case. Tim Bednall, Partner, King & Wood Mallesons, outlines key lessons for sustainability reporting.

The Federal Court has dismissed claims made by the Australasian Centre for Corporate Responsibility (ACCR) that Santos made misleading representations in its December 2020 Investor Day Presentation, FY20 Annual Report and 2021 Climate Report. The court found that ACCR failed to make out any of its claims and awarded costs against ACCR.^[1]

This is a decision on the facts, as to whether particular statements and omissions made by Santos in those documents were likely to mislead or deceive. However, the judgment contains useful guidance on several matters relevant to compliance with the new mandatory sustainability reporting regime, including:

• defining the target audience;
• whether statements about sustainability ‘targets’ are forward-looking statements and must therefore have reasonable grounds; and
• what constitutes reasonable grounds for statements about future matters in this context, including matters 20 years into the future.

ACCR’s allegations and the Santos responses

In summary, ACCR alleged that Santos made misleading representations:^[2]

• that it is a producer of clean energy and that natural gas provides clean energy, misleading because gas is not ‘clean’ and Santos is a heavy emitter of greenhouse gas (GHG);
• that it had a ‘credible and clear plan’ (including targets and a ‘Net Zero Roadmap’) based on reasonable assumptions, to reduce scope 1 and 2 emissions by 26-30% by 2030 and achieve net zero by 2040, but omitted relevant facts that affected this outcome; and
• that it could in future deliver zero emissions hydrogen or clean hydrogen, when it proposed to produce ‘blue’ hydrogen which generates material emissions.

The court accepted the Santos response that, in summary:

•  ‘clean energy’ does not convey no emissions and [in context] no reasonable member of the target audience could have been led into error;
• zero emissions hydrogen was net zero; and
• the Net Zero Roadmap set long term targets about matters with a highly uncertain future, and a reasonable member of the target audience would not have been misled.

The ‘target audience’

The court found that the target audience when assessing whether Santos’s representations were likely to mislead was ‘a large and diverse group of investors’. Interestingly, this is narrower than the definition of primary users of sustainability reports under AASB S2, which includes investors, lenders and other creditors.

The court proceeded on the basis that the target audience had characteristics including a sufficient interest in anthropogenic climate change and global warming; an understanding that there is an ongoing energy transition to reduce reliance on fossil fuels and thus emissions; an understanding that long-term strategic objectives, which may be set by companies operating in the oil and gas sector, such as Santos, may be achieved in a variety of ways and that the pathway to achieve those objectives would change as circumstances change; and an expectation that Santos will respond and/or adapt to technological and regulatory developments in the area.^[3]

While these characteristics are particular to this target audience, their nature will guide assessments of target audiences for future claims of misleading representations in sustainability reports.

Setting targets

In a crucial finding, the court held that statements about future emissions targets were representations about future matters. Under Australian law, a representation about a future matter will be misleading unless the person making the representation establishes that the representation was made on reasonable grounds.

Santos argued that it was representing that it had set a target of being net zero by 2040 and had a strategy to pursue it which, at most, was a present intention or belief. However, the court found that:

‘Statements … that Santos has a “realistic roadmap, real activities and a plan to achieve net zero by 2040” and that Santos expects to be net zero by 2040 are, in my view, statements about the future and, it follows as to “future matters”. They are inherently statements about the future and convey an expression by Santos about where it expects its emissions to be as at 2040.’^[4]

This clarifies an issue relevant for mandatory sustainability reports: statements about targets must be based on reasonable grounds.

‘Reasonable grounds’ for representations about future matters, including targets

Whether grounds for representations about future matters are ‘reasonable’ has been a long-standing issue for regulators and companies in financial reports, prospectuses and product disclosure statements (PDS).

ASIC guidance indicates that representations about financial matters more than two years into the future are unlikely to have a reasonable basis. However, the sustainability reporting standard requires disclosure of the impacts of climate change on the financial performance and position of the entity in the short, medium and long term.

Here, the court made a finding that provides clarity for mandatory reporting obligations, holding that Santos had established that its emissions targets by 2040, 20 years in the future, were based on reasonable grounds, including reasonable assumptions about future developments:

‘I accept … that given the long range nature of the Targets the reasonable member of the target audience understood that they involved assumptions about future markets and developments, including regulatory developments, that were beyond Santos’ control and that the elements of the Net Zero Roadmap were based on Santos’ judgment about the types of opportunities that may enable it to achieve net zero emissions by 2040. That is, it is a long term target that predicts what Santos can do if markets, technologies and regulatory regimes emerge as anticipated. …

‘It would be clear to a reasonable member of the target audience … that the pathway may need to be adapted dependent on changes to the internal and external environment which would inevitably occur over a 20 year period’^[5]

The court found that none of the statements that Santos made about targets, including alleged ‘positive misrepresentations’, were misleading or likely to mislead as alleged, when considered in context by the target audience.

^[1] (Australasian Centre for Corporate Responsibility v Santos Limited [2026] FCA 96)

^[2] Allegedly in breach of sections 18 and 33 of the Australian Consumer Law and section 1041H of the Corporations Act

^[3] At [499]

^[4] At [475]

^[5] At [607] and [608]