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ASIC gets serious on greenwashing
In a recent speech, ASIC* Chair Joseph Longo presented ASIC’s new corporate plan and noted that:
“Rather than attempting to be everywhere, we must prioritise the areas of greatest harm and take action to protect vulnerable people. Being a regulator is all about choices, so we must be targeted in the way we deploy resources.”
ASIC’s priorities for 2022-2026
The four external strategic priorities include:
Product design and distribution;
Sustainable finance;
Retirement decision making (focussing on super products, managed investments and financial advice; and
Technology risks (focussing on digitally enabled misconduct).
ASIC addresses greenwashing under the heading…“sustainable finance practices”
The focus on sustainable finance is of particular interest in ethical and sustainable investing, as ASIC wants to improve:
sustainable finance practice, and
disclosure of climate risks.
This is because:
Climate change and sustainability have become the dominant themes of our times, with investment increasingly being driven by values-based decisions; and
In response, there has been a proliferation of investment products and companies appealing to consumers with sustainable or ‘green’ investments and ‘net-zero’ emission promises.
ASIC’s response focuses on making “green product” claims accurate and understandable, viz:
Improving climate-related governance and disclosure are key priorities;
A core part of ASIC business is to ensure that firms comply with disclosure requirements and do not mislead investors; and
As more Australian firms release financial reports and disclose climate risks, “we need to speak the same language as our global peers.'“
ASIC has lodged a joint submission to the International Sustainability Standards Board (ISSB)** on its proposed standards, so that we can have globally comparable standards.
What’s happening in Australia?
Although 50% of ASX 200 companies are already voluntarily reporting against global benchmarks, more needs to be done! ASIC want to ensure that firms moving towards net-zero do so with integrity – fostering trust and practising transparency.
With regards to climate-related disclosure, companies:
Must comply with the law; and
The information must be useful and accurate for investors. If you make net-zero claims, you must have substance behind those claims.
Enforcement – How will these standards be applied?
Currently ASIC is testing “green” investment offers and targeting false claims by firms – i.e. labels or headline statements about a product’s green credentials cannot be misleading, for example:
If a product issuer promotes an investment opportunity and states they will “take sustainability into account” as part of their strategy, but doesn’t explain how, this simply isn’t enough. As how is this going to help investors understand the product’s investment strategy?
Firms are expected to explain how they will “take sustainability into account”, using specific and clear language.
And ASIC are already actively monitoring the market, looking for dubious claims. For example:
On Thursday, 8 September 2022, ASIC released a list of managed funds which voluntarily changed their marketing materials as the earlier product information contained inaccuracies about product performance.
Even though the earlier material was NOT in breach of the law***, ASIC was concerned and is seeking to protect investors, especially retirees, making important investment decisions based on marketing that did not accurately represent fund performance.
So, when does ASIC enforce?
Joseph Longo concluded his speech with
“My ambition is for ASIC to be confident in discharging our regulatory and enforcement responsibilities, to serve and advance the public interest more effectively.”
So, watch this space!
You can find out more about ASIC’s corporate plan here, and Joseph Longo’s recent speech (23 August 2022 ) here.
* ASIC (The Australian Securities and Investments Commission) is an independent commission of the Australian Government tasked as the national corporate regulator. ASIC's role is to regulate company and financial services and enforce laws to protect Australian consumers, investors and creditors.
** ISSB was launched at United Nations Climate Change Conference COP26 in 2022. It aims to produce a new global standard to replace a confusing mixture of disclosure practices that some companies use to assess the impact of climate change.
*** Please note: the law here refers to a breach of misleading and deceptive disclosure provisions in the Corporations Act.
Next steps
If you want to know more about greenwashing, we have written some other blogs on this topic, check them out here.
Greenwashing and Greenwishing …how do you know your investments are ethical
Greenwashing and your green investments
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