Increased investor demand for sustainability-related financial products in the Australian market comes with a growing risk of ‘greenwashing’, which is the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical.
The Australian Securities & Investment Commission (ASIC) has made greenwashing one of its enforcement priorities for 2023, a move which John Livanas, chief executive at State Super, sees as a necessary step to protecting investors and super fund members.
“The actions of the regulator are properly motivated, and there are a lot of people criticising them without actually understanding the principles behind their focus,” Livanas told AsianInvestor.
Sustainable investments exist within a rapidly evolving space, where significant and new developments are frequently rolled out in relation to disclosure standards for sustainability-related products, which means super funds need to be reviewing their investment processes, according to Livanas.
“This is a hard business and portfolios are really complex, and the scrutiny on trustees is increasing dramatically at the moment,” he said. “I think all of us have to take a deep breath and have a real look at what we say, and what we do and how it is that we do it.”
Greenwashing is the “corrosive agent” to financial market integrity, according to Karen Chester, deputy chair of ASIC.
ASIC sees three factors as being an effective antidote to greenwashing, Chester noted at the Responsible Investment Association of Australasia (RIAA) on May 10.
She said these factors are: transparency, through disclosures that comply with current legislation; policy-installed ‘bright lines’ to support that disclosure; and the continued action and cooperation of regulators.
Collectively, these policy initiatives will provide the ‘bright lines’ to afford greater comparability in climate-related financial disclosure and, over time, sustainability issues more generally, she said.
“Taken collectively they will also, over time, prove to be a broad antidote to greenwashing: the ‘nowhere to hide’ transparency of quality and comparable climate-related financial disclosures with the supporting policy installed ‘bright lines’", said Chester.
“Over the long-term, case-by-case intervention is not a cost-effective nor comprehensive antidote to greenwashing. We are therefore active in supporting Treasury in these policy developments to support increased transparency and trust across the system.”
In the Australian Federal Budget released on May 9, the government confirmed that A$4.3 million ($2.9 million) would be allocated to ASIC in the years 2023–24 to ensure the integrity of sustainable finance markets by investigating and undertaking enforcement action against market participants engaging in greenwashing and other sustainable finance misconduct.
The regulator has made 35 interventions in response to its crackdown on greenwashing activities in Australia’s financial markets. These include 23 corrective disclosure outcomes, 11 infringement notices issued, and in one case, the commencement of civil penalty proceedings.
“ASIC has now issued over A$150,000 in infringement notices for greenwashing conduct since October 2022 as well as commenced civil proceedings in the Federal Court against Mercer Super for alleged greenwashing,” a spokesperson for the corporate regulator told AsianInvestor.
Most recently, ASIC fined Future Super for A$13,000 over claims it breached greenwashing laws by overstating its environmental credentials in a Facebook post bragging about divesting from fossil fuels.
The post included the statement “Naysayers don’t join together and move nearly $400 million out of fossil fuels.” ASIC said the statement was misleading to investors because it suggested a large sum of money had been divested.
Future Super only had A$400 million in total funds across all its investments at the time of the post — therefore suggesting that all of these funds were in fossil fuels before they were invested in Future Super.
The corporate watchdog ruled that there was no basis for these claims and slapped the outfit with the infringement fine.
“We believe these actions are sending a strong message to market participants that sustainability statements need to be accurate and backed up by evidence. Our focus on greenwashing continues,” said the spokesperson.
“ASIC is looking to use the full range of enforcement responses in this area and we can expect to see further outcomes this year,” they said.
Editor's note: The headline on this story has been changed.