Federal Court sets the standard for corporate climate commitments
What you need to know
- The Federal Court has dismissed allegations that Santos misled investors by representing it had a plausible path to net zero emissions by 2040.
- The Court held that future commitments such as net-zero targets are representations with respect to future matters within the meaning of s 4(1) of the ACL, meaning reasonable grounds are required and must be proved by the representor.
- Santos had robust systems and processes in place, including technical expertise, external reporting and sufficient internal oversight. Therefore, it had reasonable grounds to commit to the targets it did.
- Businesses should note that this decision turned on the specific facts and evidence before the Court. Different outcomes may result where processes are less robust or documentation is inadequate.
What you need to do
Businesses making public commitments about climate or sustainability targets should take the following steps to ensure those commitments are defensible:
Establish robust processes
- Ensure that commitments are the product of a reasonable process involving collaboration between senior business and technical expertise.
- Document the basis for any commitment and retain evidence of the process followed.
- Establish regular review mechanisms through corporate governance structures to monitor progress and update assumptions.
Frame commitments appropriately
- Ensure commitments are framed flexibly, acknowledging that pathways may evolve over time in response to technological and regulatory developments.
- Be clear about the assumptions underpinning any commitment, and ensure these are reasonable and supported by available evidence.
Communicate clearly
- Ensure that any terminology used (such as "clean", "sustainable" or "net zero") is consistent with industry practice and clearly explained.
- Ensure relevant disclosures elsewhere in the same document are consistent with the representations made.
Background to the proceeding
This was one of the first cases, both domestically and internationally, to challenge the veracity of a company's net zero emissions target. The judgment was handed down on 17 February 2026, with reasons published on 23 February 2026.
The Australasian Centre for Corporate Responsibility (ACCR) is an incorporated not-for-profit shareholder advocacy organisation, which was also a shareholder in Santos.
The ACCR alleged that Santos made misleading or deceptive representations in contravention of sections 18 and 33 of the ACL and section 1041H of the Corporations Act 2001 (Cth). The alleged misrepresentations fell into three categories:
- Clean Energy Representations: The ACCR alleged Santos made claims that natural gas was a "clean energy" or "clean fuel" to suggest natural gas did not result in greenhouse gas (GHG) emissions.
- Zero-Emissions Hydrogen Representations: The ACCR alleged Santos made representations that it was involved in the production of "zero-emissions" or "clean" hydrogen products, implying the hydrogen was free from emissions.
- Net Zero Representations: The ACCR alleged Santos made representations about its plan to achieve net zero Scope 1 and 2 emissions (direct emissions from company operations) by 2040, that its operations were sustainable, and that it had a credible pathway to achieve net zero. The ACCR claimed the "Hydrogen with carbon capture and storage (CCS)" component of the Net Zero Roadmap was almost pure speculation as the relevant technology was immature.
The targets and commitments were set out in Santos' 2020 Annual Report, 2020 Climate Change Report, 2021 Annual Report and 2021 Climate Change Report.
Notably, the ACCR sought only declarations of contravention and an injunction, not damages, explaining that it brought its claim to vindicate the public interest in ensuring climate commitments are reasonably based.
Justice Markovic dismissed all claims, finding that Santos did not engage in misleading or deceptive conduct. Her Honour also made a costs order in favour of Santos.
Target Audience
Before addressing the specific representations, the Court determined the characteristics of the target audience of Santos' statements. The Court found that the ordinary or reasonable member of the target audience:
- had varying levels of knowledge about climate change;
- was not assumed to have scientific training;
- understood that long-term strategic objectives may be achieved in a variety of ways and would expect pathways to evolve; and
- would expect Santos to respond and adapt to technological and regulatory developments.
"Clean energy" and "clean fuel" understood to be a relative term
The Court held the Clean Energy Representations were not misleading or deceptive because, as Santos submitted, the target audience would have understood "clean" to be a relative term. It was intended to convey that “natural gas” was cleaner than coal and diesel, not to convey that natural gas had no GHG emissions.
The ordinary person understands enough about the properties of natural gas to know that it emits GHG emissions when burnt. In addition, the reasonable member of the target audience also had access to the 2021 Climate Change Report and Investor Day Presentation. Those publications disclosed Santos' Scope 3 emissions from natural gas. The Court also found that the 2020 Annual Report clearly disclosed in other parts material carbon emissions, reinforcing the interpretation that "clean" was used in a relative sense.
"Zero emissions hydrogen" a developing technology with no accepted meaning
The second category of representations concerned Santos' statements about hydrogen production.
The Court accepted expert evidence that at the relevant time the terms "clean hydrogen" and "zero emissions hydrogen" had no settled meaning within the Australian energy industry, and were used interchangeably in the industry to refer to blue hydrogen produced from natural gas with CCS and offsets.
Her Honour found that a reasonable member of the target audience would have understood "clean hydrogen" and "zero-emissions" to mean the production of hydrogen from natural gas with CCS with no net emissions. Because Santos' publications, read in context, conveyed that meaning, the representations were not misleading or deceptive, as they were not liable to lead the target audience into error.
Targets are forward looking statements but Santos had reasonable grounds
The Targets Representations were the most significant aspect of the ACCR's case, and involved substantial factual analysis of each impugned representation. The Court engaged with lay and expert evidence on various scientific issues, some of which was very technical, to determine whether Santos had reasonable grounds to make the representations.
Commitments to emission targets were forward looking statements
The Court found that Santos' net-zero targets were representations with respect to future matters within the meaning of section 4(1) of the ACL. The significance of this finding is that the representor bears the evidentiary burden to prove it had reasonable grounds for making the representation. If reasonable grounds cannot be established, the representation is taken to be misleading or deceptive.
Santos claimed the Targets conveyed that it had a strategy to pursue them which was, at most, a present intention or belief. The Court disagreed, finding the Targets to be "inherently statements about the future".
However, her Honour noted that the characterisation of the Targets as "future matters" or as representations of present intention and opinion may not matter at a practical level because Santos accepted the Targets gave rise to an implied representation that it had objectively reasonable grounds for identifying the Targets. That is, on either analysis, the question was whether Santos had reasonable grounds for making the representations.
Reasonable grounds: technical expertise, robust development and inherent uncertainty of long-range ESG targets
Santos filed a significant amount of evidence as to its systems and processes relied on when making the representations, from various technical subject matter experts across its business. Many of the assumptions made in the Targets (for example, the emissions baseline and current CCS capacities) were appropriately explained and justified by Santos. Justice Markovic accepted Santos developed the Targets as part of an annual review process and that they were the culmination of work over a number of years towards a wider strategy. This included the representation about the reduction of emissions via hydrogen with CCS.
The ACCR submitted that this component was almost pure speculation and was not technically and economically feasible even over the timeframes contemplated. The Court disagreed, referring to Santos' reliance on external market studies, internal documents, government documents and expert evidence to indicate it had been working on the topic for a long time, and therefore had a reasonable basis for the statements it made. Santos had not "plucked figures out of the air or made assumptions without foundation".
Justice Markovic also accepted expert evidence that long-range ESG targets necessarily involve assumptions about external future contingencies and do not require a basis only in existing, objective or verifiable facts. Her Honour found that the Targets were long term and must by their nature have included a number of interdependent and unpredictable assumptions which were sensitive to factors beyond Santos' control. The target audience would understand expressions like "realistic and doable" or "clear and credible" as measured descriptors setting expectations lower than certainty. That a plan is "realistic" suggests that it can be achieved, but not that it will be achieved.
Flexibility in net-zero pathways
The Court accepted that there was flexibility in the elements of the Net Zero Roadmap and the method by which targets were to be achieved. Her Honour found that the ACCR's focus on single aspects of the Roadmap without regard to flexibility resulted in artificial rigidity to what would be regarded by a member of the target audience as an adaptable roadmap.
Importantly, the net-zero target related only to Santos' Scope 1 and 2 emissions (direct emissions from company operations) and not Scope 3 emissions (indirect emissions from the value chain, including end-use of products).
Implications of the decision
This decision provides important guidance for Australian businesses making net zero commitments and other long-term ESG representations.
The Court's finding that long-range ESG targets necessarily involve assumptions about external future contingencies provides a measure of comfort to companies that they will not be held liable merely for setting ambitious climate targets that are accompanied by a measure of uncertainty as to whether they can ultimately be achieved.
That being said, the categorisation of these sorts of statements as representations as to future matters under s 4(1) of the ACL does mean reasonable grounds are required. In that respect, Santos developed its targets over a long period of time, through a collaborative process that relied heavily on both senior parts of the business and technical expertise, as well as external guidance. The position remains that if ESG representations are rushed, or made without significant technical input, there may be a risk of misleading or deceptive conduct.
Despite this claim against Santos being unsuccessful, we do not expect public interest groups to be dissuaded from continuing to pursue litigation as a means to examine and seek to hold corporations accountable to their climate commitments. As an increasing number of countries scale back (or completely move away from) commitments to net zero targets, and an increasing number of companies are mandated to report on climate-related matters, it is likely that sections of the public will turn their attention to demanding accountability directly from companies instead. Scrutiny will likely intensify in June of this year, when the Federal Senate is expected to release its report into greenwashing.
Australian businesses should therefore ensure that any ESG representation is developed through a documented and reasoned process involving senior management over an appropriate period of time, with external market studies, government policies and technological developments supporting their assumptions.
It is important to communicate transparently about the uncertainties inherent in long-term targets and the fact that pathways may need to adapt to changing circumstances. Importantly, businesses should also recognise that, given the extent of uncertainty in long-range targets, an effective process will include regular uplift and review of future scenarios to ensure the commitments remain sound.
For a broader analysis of climate litigation in Australia, please see our recent publication on Key developments in 2025 and what's ahead for 2026.
Climate transition plans are integral to managing climate-related risk, complying with regulations and securing investment. Further information on how Ashurst can support your organisation in navigating the complex and evolving sustainability reporting landscape click here: Sustainability & Climate Transition Plan Assessment Solution
Authors: Honor Kelly, Associate; Romy Keppel, Graduate
