Santos Case: Key Takeaways for Net-Zero Claims & Greenwashing Risk

The Federal Court of Australia has dismissed a landmark case alleging greenwashing against energy producer Santos, a decision with potentially far-reaching implications for companies making net-zero commitments. The case, brought by shareholder advocacy group the Australasian Centre for Corporate Responsibility (ACCR), centered on claims that Santos misled investors regarding its environmental claims, specifically concerning the “clean” nature of its fuel and the plausibility of its net-zero emissions targets. The ruling, handed down on February 17, 2026, and detailed in court documents released this week, establishes a latest standard for how corporate climate commitments will be evaluated legally.

The Core of the Dispute

The ACCR argued that Santos engaged in misleading or deceptive conduct through statements made in investor presentations and annual reports between 2020 and 2021. Specifically, the claims focused on three key areas: Santos’ representation of natural gas as a “clean energy” source, the viability of its 2030 emissions reduction target and 2040 net-zero roadmap, and assertions about producing “zero-emissions” hydrogen. The ACCR maintained that these statements were unsubstantiated and potentially misleading to investors. The organization did not seek financial compensation, but rather a declaration of breach and an injunction to ensure future climate commitments are grounded in reasonable evidence. As Shearman & Sterling reported, this was the first international case to directly challenge the veracity of a company’s net-zero targets.

Court Findings: Reasonable Grounds are Key

Justice Markovic ultimately found in favor of Santos, determining that the company’s representations were not misleading or deceptive. A central tenet of the court’s decision was the requirement for “reasonable grounds” to support future-facing commitments like net-zero targets. The court clarified that such representations are treated as statements about future matters under Australian Consumer Law, meaning they aren’t automatically misleading simply as the future is uncertain. However, companies must demonstrate a reasonable basis for their claims, supported by appropriate evidence and robust internal processes.

The court’s analysis of the target audience was also crucial. Justice Markovic determined that Santos’ communications were directed towards a sophisticated investor base with a general understanding of climate change and the energy transition, but not necessarily scientific expertise. This audience would reasonably expect that long-term objectives might evolve as circumstances change. The court found that Santos’ apply of terms like “clean fuel” in relation to natural gas was not misleading when viewed in context – specifically, that natural gas is cleaner than coal and diesel, not that it is emission-free. Similarly, the court accepted that at the time of the statements, “clean” and “zero-emissions” hydrogen were commonly used terms referring to blue hydrogen produced with carbon capture and storage.

Digging into the 2030 Target and Net-Zero Roadmap

The most substantial part of the judgment focused on Santos’ 2030 target (a 26-30% reduction in Scope 1 and 2 emissions) and its 2040 net-zero ambition. The court scrutinized the evidence supporting these targets, including expert testimony and internal documentation. Justice Markovic accepted expert evidence that long-range environmental targets inherently involve assumptions about future technologies, markets, and regulations. The court found that Santos had reasonable grounds for its baseline emissions assumptions and its reliance on carbon capture and storage as a key component of its roadmap. Ashurst’s analysis of the ruling highlights that the court acknowledged the flexibility inherent in net-zero roadmaps and the methods used to achieve targets.

Implications for Corporate Climate Commitments

This ruling doesn’t supply companies carte blanche to make unsubstantiated environmental claims. Rather, it provides a framework for assessing the reasonableness of those claims. Companies making public commitments about climate or sustainability targets should prioritize establishing robust processes for target setting, documenting the basis for those commitments, and establishing regular review mechanisms. Framing commitments flexibly, acknowledging potential changes in technology and regulation, is also crucial. Clear communication about the assumptions underpinning any commitment is essential, and terminology like “clean” or “sustainable” should be consistent with industry practice and clearly explained.

Regulatory Scrutiny Remains High

Despite the favorable outcome for Santos, regulatory pressure on greenwashing remains intense. The Australian Securities and Investments Commission (ASIC) has recently secured penalties against several funds and investment managers for misleading environmental claims. In 2024, Mercer Superannuation was ordered to pay AUD 11.3 million for misrepresenting the sustainability credentials of its “Sustainable Plus” investment options. Vanguard Investments Australia was penalized AUD 12.9 million for similar misrepresentations regarding an “ethically conscious” fund, and Active Super faced a AUD 10.5 million penalty for false claims about its green investments. The Australian Competition and Consumer Commission (ACCC) has also taken action, securing penalties against Clorox Australia for misleading claims about “ocean plastic” in its GLAD kitchen bags and is currently pursuing legal action against Australian Gas Networks Limited regarding its “Love Gas” advertising campaign.

What’s Next: A Heightened Focus on Substantiation

The Santos case signals a shift towards greater legal scrutiny of corporate climate commitments. While the court acknowledged the inherent uncertainties in long-term targets, it emphasized the importance of reasonable grounds and robust internal processes. Companies should anticipate increased pressure from regulators, investors, and advocacy groups to substantiate their environmental claims. Expect to witness a greater emphasis on transparency, detailed reporting, and independent verification of emissions data. The ACCR, despite losing this case, is likely to continue pursuing similar legal challenges, and the ruling will undoubtedly inform future litigation strategies. The focus will be on demonstrating not just *what* a company intends to achieve, but *how* it intends to achieve it, with a clear and defensible evidentiary basis.