Australia’s climate rules make greenwashing a rational strategy – and a mounting HR risk
Green credentials have become central to employer branding in Australia, but a new submission to the Senate greenwashing inquiry warns that much of what passes for climate leadership is, in fact, sophisticated deception – and that the system is set up to reward it.
In a supplementary submission titled “The Economics of Deception: Greenwashing as a Rational Market Strategy,” the Australia Institute argues that greenwashing is no longer a fringe problem or a communications mistake. It is described as a rational response to a policy environment where it is cheaper and safer to appear sustainable than to actually decarbonise.
For HR leaders charged with protecting culture, talent pipelines and organisational reputation, that diagnosis should ring alarm bells.
The report contends that greenwashing in Australia is “government‑enabled,” embedded in the architecture of climate and energy policy rather than simply the result of a few bad corporate actors. The federal government is accused of continuing to approve new coal and gas projects, maintain generous fossil fuel subsidies and rely on carbon offsets and flexible accounting rules that allow organisations to claim “carbon neutral” or “Net Zero” status while emissions keep rising.
This policy mix, the Institute argues, creates a powerful commercial logic: genuine emissions reductions are hard, expensive and uncertain, while reputational climate claims can be purchased relatively cheaply via offsets and certification. In that context, greenwashing is framed not as an ethical failure but as the most economically rational strategy for many businesses.
For HR leaders, that raises a critical question: if the system rewards spin over substance, how do you stop your organisation’s climate story becoming a liability for staff trust and attraction?
One of the most striking themes in the analysis is the gap between public understanding and the way key climate labels are used in corporate and government messaging. Polling from the Australia Institute’s Climate of the Nation 2024 survey shows that Australians are deeply confused about the meaning of “carbon neutral”, “Net Zero” and “carbon offsets”, even as these terms increasingly shape consumer choices, investment decisions and voting behaviour.
The report notes that 42% of Australians think “carbon neutral” means emissions are released but cancelled out by activities such as buying offsets, while 21% say they do not know what the term means at all. Others assume it means no emissions are released, that companies are simply reducing emissions in parts of their operations or that a tax is being paid on pollution.
Similar confusion surrounds carbon offsets themselves, with more than a third of respondents not at all confident they know what an offset is, and widely differing assumptions about whether offsets actually reduce the amount of greenhouse gases in the atmosphere.
“Net Zero” fares no better. Around one in five Australians say they do not know what it means, nearly a third think it means no emissions are released at all, and just over a quarter understand it as emissions being released but offset elsewhere. A significant share attribute it to partial reductions, new reporting obligations or emissions taxes. Despite this, “Net Zero” is now common in investor presentations, ESG disclosures and ASX filings, including from fossil fuel producers.
This confusion would be concerning under any circumstances. For HR leaders, it becomes a people and culture issue because employees, candidates and shareholders are forming judgements about an employer’s integrity and climate performance on the basis of labels they do not fully understand.
The risk is twofold: first, that organisations unintentionally mislead staff and stakeholders by relying on vague or poorly explained claims; and second, that more informed or sceptical employees perceive those same claims as deliberate misrepresentation, damaging trust in leadership.
The report points out that public expectations are often much stricter than current practice. A majority of Australians believe companies that have increased or plan to increase their emissions should not be allowed to market themselves as “carbon neutral” or “Net Zero”. Yet under existing government programs and voluntary reporting frameworks, companies can and do make those claims while their actual emissions grow.
From a legal perspective such statements may still pass muster, but from a workforce and reputational standpoint they are plainly out of step with what many people think those labels should signify.
The Institute is particularly critical of the federal government’s own conduct, describing a pattern of “state‑sponsored greenwash” that mirrors and legitimises similar behaviour in the private sector. It singles out the Safeguard Mechanism – Australia’s primary industrial emissions framework – for allowing continued fossil fuel expansion and heavy reliance on offsets, and notes cases where large gas projects have increased their pollution yet received tradable credits because government‑set baselines were raised even faster than emissions.
Another major focus is the Climate Active program, the government’s voluntary carbon neutral certification scheme used extensively in corporate branding and procurement. Since the original submission to the inquiry, more than 100 businesses have reportedly withdrawn from Climate Active, some citing reputational concerns and doubts about the integrity of offsets. High‑profile participants have publicly acknowledged that buying offsets does not undo the environmental damage caused by fossil fuel use, directly undermining the core promise implied by the “carbon neutral” label.
At the same time, the competition regulator has expressed unease about the scheme. The Australian Competition and Consumer Commission has never formally certified the Climate Active trademark, has paused that process on the basis of unclear rules and has raised concerns that consumers may not properly understand what they are getting when they see the logo. Yet the program continues to certify organisations and license the mark, while a long‑promised review has been delayed with no clear timetable.
For HR leaders, these developments create a challenging field to navigate. Many organisations have aligned their employee value propositions, recruitment messaging and internal engagement campaigns to government‑endorsed frameworks such as Climate Active. If those frameworks are now under question, people teams face the task of reassessing how climate credentials are communicated to staff and candidates, and whether existing claims still reflect both reality and contemporary expectations.
The submission also flags changes in financial regulation that may have significant implications for corporate reporting and board oversight. New legislation will make climate‑related financial disclosures mandatory for large companies, requiring annual sustainability statements and detailed reporting on climate risks.
While this could, in theory, support more informed decision‑making, the Australia Institute warns that disclosure alone does not drive decarbonisation. It notes that a large majority of ASX100 companies already report against international climate disclosure standards, often without evidence of corresponding cuts in emissions.
More controversially, the legislation includes a three‑year moratorium shielding certain climate‑related statements in these reports from most civil litigation, except where pursued by the corporate regulator. Critics argue this effectively grants companies a window in which to test and refine climate narratives with reduced legal exposure, at the very moment when investors, employees and the public are asking harder questions about integrity.
For HR and people leaders, the upshot is that climate and sustainability commitments are becoming more entwined with questions of governance, risk and legal exposure. Climate claims are no longer “just marketing”; they sit alongside financial disclosures and carry potential consequences for director duties and organisational liability. That elevates the importance of HR being closely aligned with legal, risk and sustainability teams when shaping internal and external narratives about climate performance.
Beyond the legal and policy detail, the submission points to a broader shift in how greenwashing is likely to be viewed internationally. The recent advisory opinion of the International Court of Justice, requested by the UN General Assembly and co‑sponsored by Australia, reinforces that states have obligations not only to mitigate climate change, but also to regulate private actors and prevent foreseeable harm.
The Institute suggests this could eventually recast government‑backed greenwashing – including programs that certify polluters as “carbon neutral” or rely heavily on offsets – as a breach of emerging international norms
In practice, that could intensify global scrutiny on Australian organisations with international workforces, global clients or multinational ownership structures. HR teams already managing employee expectations on climate across multiple jurisdictions may find that what is acceptable under Australian frameworks is judged more harshly in Europe, North America or parts of Asia where standards and enforcement are evolving quickly.
Taken together, the message for HR is uncomfortable but clear. Greenwashing is not going away on its own; under current settings, it is structurally incentivised. Relying on slogans, government logos or offset‑heavy “Net Zero” pathways without a clear, evidence‑based decarbonisation plan risks not only regulatory attention but also employee backlash and long‑term brand damage.
The Australia Institute concludes that greenwashing will only recede when genuine emissions reduction becomes cheaper and more rewarding than deception. For HR leaders, that translates into a practical agenda inside organisations: insisting on clarity over what climate labels really mean, challenging claims that are out of step with workforce expectations, and ensuring that sustainability commitments are anchored in operational change rather than marketing.
In an era where younger workers in particular increasingly choose employers on the basis of climate and social performance, the credibility gap exposed by this submission is not just a policy problem in Canberra. It is a live people risk in every boardroom and HR strategy that leans on environmental promises to attract, motivate and retain talent.
