On September 22, 2023, the fire at the Ming-Yang plant in Pingtung, Taiwan resulted in serious injuries and deaths. According to media reports, the fire safety-controlled organic peroxides stored in the plant exceeded the regulated amount by 30 times. However, Ming-Yang’s corporate social responsibility report (CSR) of 2021 showed that the company passed the ISO certification for environmental protection management and occupational health and safety management. Questions of whether listed companies actually implement sustainability practices and whether the information they disclose have been “greenwashed” have once again drawn widespread attention from the public.

As of the third quarter of 2023, 864 companies have filed corporate sustainability reports (ESG reports) in Taiwan, accounting for approximately 64% and 30% of the total number of exchange-listed companies and OTC-listed companies respectively. According to the requirements of the Financial Supervisory Commission's "Action Plan for Sustainable Development of Listed Companies" (March 2023), all listed companies will be required to file ESG reports starting from 2025.

If the contents disclosed in a company's ESG report contain misrepresentations, and the degree of which may cause investors to be misled in their decision-making, the company may be liable for securities fraud. However, if we consider that the basis for the preparation and filing of ESG reports is the Taiwan Stock Exchange Corporation Rules Governing the Preparation and Filing of Sustainability Reports by Listed Companies (hererinafter the “Rules”), which is only internal regulations of the TWSE or the TPEx and is not a legal basis for laws and regulations related to the Securities and Exchange Act, then whether a ESG report is a "relevant financial or business document filed or publicly disclosed in accordance with the Securities and Exchange Act" and whether a serious “greenwashing” misrepresentation would make the company and its directors criminally and civilly liable in accordance with Paragraph 2 of Article 20, Article 20-1, and Article 171 of the Securities and Exchange Act may be disputable.

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■Misrepresentations in a company’s ESG report may be liable for civil damages

In comparison, the basis for the standard of preparation for a company’s annual report for shareholders’ meetings is Paragraph 4 of Article 36 of the Securities and Exchange Act. It should be less disputable regarding the application of the aforementioned provisions of the Securities and Exchange Act on such preparations. If a company's annual report discloses ESG-related information which is materially misrepresented, the company may be liable to the investors for civil damages for misrepresentation in "financial or business documents" under the Securities and Exchange Act.

In addition to securities fraud, in Taiwan’s judicial practice, liability-related corporate greenwashing also includes instances where “green buildings” are advertised as part of a real estate sales contract but the seller fails to deliver green features, constituting performance defect (Taiwan Supreme Court Civil Judgment 112-Tai-Shang-Zi No. 488) as an aspect for determining civil contractual liability. In addition, courts have used records of corporate CSR as evidence to determine company compensation and benefits (Tainan Xinshi District  Summary Court Civil Judgment 107-Xin-Lao-Xiao-Zi No. 14) or the existence of an employment relationship (Taipei Shilin District Court Civil Judgment 105-Su-Zi No. 1692).

As for international cases involving greenwashing, there are, for example: In February 2023, the NGO Global Witness submitted a complaint to the U.S. Securities and Exchange Commission (SEC) that Shell’s annual report was suspected of exaggerating its overall investment in renewable energy; in August, 2021, shareholders of the Commonwealth Bank of Australia (CBA) applied to the Federal Court of Australia to inspect internal documents of several CBA natural gas investment plans to assess whether CBA had violated its ESG investment policy of committing to comply with the Paris Convention; during 2022, the Netherlands’ Reclame Code Commmissie (RCC) found that the sticker on Chiquita’s bananas which included the statement "CO2 Neutral" lacked information sufficient for consumers to understand, and determined that the sticker was misleading advertisement, etc.

It can be seen from both domestic and foreign cases that there are many ways for companies to provide green information or ESG disclosures, including annual reports, ESG reports, prospectuses for issuing financial products (securities, funds), other statutory filing documents of the company, and various product advertisement or publicity, etc. Each of which involves different legal provisions and legal responsibilities, from general civil contractual liability and civil and criminal liability related to securities fraud, to corporate governance and shareholders’ right of inspection under the Company Act, as well as the legal fields involving the Fair Trade Act and the Consumer Protection Act, and each of which contains complex legal risks.

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■A professional third-party entity can help companies conduct a good ESG risk assessment

In principle, if sustainability information is misrepresented or inaccurate, attempting to mislead investors or consumers in order to cash in profits, the company must be held liable for related responsibilities. However, due to lack of awareness of legal risks, a company may also inadvertently violate the law and become afraid of being blamed for any move, which may lead to the so-called "greenhushing" effect. At this point, in order to avoid liabilities, a company chooses to disclose ESG information conservatively or downplay its climate commitment, which might in turn undermine the effectiveness of the sustainability disclosure system, and the company would miss green business opportunities.

Lawyers have long been assisting corporate clients in corporate governance and compliance-related issues, and are well versed in legislative policies, application of laws and regulations, and judicial practices. It is recommended that competent authorities consider including lawyers as professional third-party entities for the verification of sustainability indicators and the confirmation of sustainability issues in the evaluation of amendments to ESG-related regulations or standards. Enterprises should also assess the legal risks associated with ESG-related actions in advance and seek professional legal consultations from lawyers, so that they may control legal risks relating to ESG and achieve the goal of sustainable development.

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