March 2024
Aaron Chen and Tina Lee
With increasing environmental protection awareness, governments worldwide have been advocating Carbon Footprint Verification and sustainable information disclosure in recent years, aiming to encourage industries with high carbon emissions to reduce greenhouse gas emissions. Besides, governments seek to incentivize investors to channel funds into companies committed to sustainable operations by mandating them to disclose sustainable information in annual reports, financial statements, or sustainability reports.
As a result, many companies regard the disclosure of sustainability information in sustainability reports, annual reports, and financial statements as a strategy for showcasing their environmental achievements, aiming to enhance a corporate reputation and attract investments. In 2022, Greenpeace, a non-profit organization, commissioned the Algorithmic Transparency Institute (ATI) and Harvard University to conduct a research report[1] on the “greenwashing” social media exposure of fossil fuel producers, automotive manufacturers, and airlines. The report revealed that approximately two-thirds of these entities publish “Green Innovation” achievements on social media, using natural imagery in advertisements or engaging diverse ethnicities and reputable figures as spokespeople. In doing so, they attempt to integrate environmental awareness into their corporate image. However, despite these efforts, “Green Innovation” remains a low proportion of corporate operations, raising suspicions of “greenwashing” through social media content.
The issue of “greenwashing” has become a crucial concern that awaits resolution under sustainability information disclosure policies. Internationally, there have been cases where regulatory authorities have penalized companies for fraudulent or misleading sustainability information in their financial reports. For example, Swedish oat milk brand Oatly has benefited from the global trend of increased sustainable environmental awareness and acceptance of alternative foods by promoting its low carbon emissions and minimal environmental impact during production. However, since its initial public offering (IPO) on Nasdaq in 2021, Oatly has faced scrutiny for overstating profits in its annual and financial reports and deliberately concealing water consumption and transportation pollution in its production process[2]. Following investor lawsuits against Oatly for false financial reporting, the company reached a settlement of $9.25 million in February 2024.
In light of the increasing prevalence of “greenwashing,” the European Parliament preliminarily adopted the proposal of the European Union’s Green Claims Directive on March 12, 2024.[3] The directive mandates stricter regulations on product information, such as providing scientifically substantiated data as the basis for product labeling. It also stipulates that sustainability labeling shall be based on a certification scheme or established by public authorities. Violators may lose their eligibility to participate in the public procurement process or incur fines.
Currently, Taiwan does not have regulations specifically targeting “greenwashing.” In practice, there is still debate over whether false or concealed information in sustainability reports should held accountable under the Securities and Exchange Act (hereinafter “Act”) for financial misreporting. The crux lies in the current basis for preparing sustainability reports by companies: i) ” Taiwan Stock Exchange (hereinafter “TWSE”) Corporation Rules Governing the Preparation and Filing of Sustainability Reports by TWSE Listed Companies”, ii) and the ” Taiwan Stock Exchange Corporation Rules Governing the Preparation and Filing of Sustainability Reports by Over-the-Counter Companies.” However, these regulations are standards set by TWSE, and whether sustainability reports should be considered as requirements for financial business documents specified in Paragraph 2, Article 20 of the Act, which stipulates they must be declared or announced in compliance with the law, remains subject to discussion[4]. Additionally, because disclosing sustainability information is not part of the process of offering, issuing, privately placing, and trading securities, it cannot be classified as the general provision of securities fraud under Paragraph 1, Article 20 of the Act. While existing regulations raise doubts about whether “greenwashing” can be properly restrained, preventing sustainability reports from becoming mere writing contests requires careful considerations.
Fortunately, the Financial Supervisory Commission recently announced its schedule plan, expecting to release the “Guidelines for Greenwashing Prevention by Financial Institutions” by the end of June this year. While the specific provisions are still pending publication by the Financial Supervisory Commission, the government has taken the first step, and further developments are worth continued attention.
[1] Three Shades of Green(washing)，September, 2022，https://www.greenpeace.org/static/planet4-netherlands-stateless/2022/09/0ded952d-threeshadesofgreenwashing.pdf（last visit: April 3, 2024）
[2] INVESTMENT RESEARCH REPORT, July 14, 2021, Oatly Group AB: https://www.sprucepointcap.com/research/oatly-group-ab（last visit: April 3, 2024）
[3] Briefing of ‘Green Claim’ Directive: https://www.europarl.europa.eu/RegData/etudes/BRIE/2023/753958/EPRS_BRI(2023)753958_EN.pdf (Last Visit: April 3, 2024)
[4] The FSC plans to amend “Regulations Governing Information to be Published in Annual Reports of Public Companies” in 2024, specifying the disclosure sustainable information by domestic listed companies in the “Sustainability Information Section” of the annual report in accordance with the IFRS sustainability disclosure standards.
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