Super funds on notice as regulatory crackdown on greenwashing intensifies
Australian Securities and Investments Commission (ASIC) decision to sue Active Super, the A$14 billion (US$8.6 billion) Australian super fund, for misleading stakeholders regarding its ethical and responsible investment claims, is likely to trigger other super funds and investment players to strengthen their processes and capabilities around environment, social and governance (ESG) offerings.
“ASIC has commenced civil penalty proceedings … alleging misleading conduct and misrepresentations to the market relating to claims it was an ethical and responsible superannuation fund,” the regulator said in a release in early August.
This is the Australian regulator's third greenwashing proceeding this year, and follows a warning by the regulator’s chair, Joseph Longo, to providers of investment funds and financial products that it was on alert for greenwashing, including misleading claims about sustainability.
"This is an issue that regulators across all major markets are tackling with firms offering ESG-labelled investment products," Kathryn Saklatvala, senior director, head of investment content at consultants bfinance in London, roughly a quarter of whose clients are institutional investors in Asia.
We expect asset managers and other relevant entities – super funds included – to continue to beef up their understanding [of ESG] and processes."
She pointed to high profile regulatory moves in other regions, such as the $4 million fine for Goldman Sachs Asset Management levied by the US securities regulator in November 2022, for policy and procedure failures involving GSAM's research used to select and monitor investments.
MISLEADING?
The Active Super suit claims that between February 2021 and June 2023 the fund held a total of 28 investments, either directly or indirectly, in sectors it claimed not to invest in, including tobacco, gambling, oil tar sands, coal mining and Russia.
Despite saying it would stop investments in Russian companies following Russia’s invasion of Ukraine in February 2022, these remained in place at the end of June 2023, ASIC alleges.
“Active Super has co-operated with ASIC’s investigation and welcomes increased scrutiny on ESG disclosure standards as being good for members, the super industry and the community. As the matter is before the courts we are unable to comment further," the fund said in a press statement.
The suit came weeks after Vision Super and Active Super announced they would merge to create a new, larger entity with around $27 billion in funds under management.
CONCERNS GROW
In April, a senior ESG executive at the €277 billion Dutch pension fund PGGM told AsianInvestor he was worried about exaggerated ESG claims in the broader investment industry.
“You encounter liberal definitions. There is some inflation in the terms that we want to be very cautious about. You don’t want to overstate [investors’] social contributions,” Hans Op’t Veld, principal director for responsible investments at the fund, said at the time.
Yoo-Kyung Park, Asia head for sustainable investing and governance for Dutch pension fund APG, called for stricter punishments on greenwashing in an June 2022 interview with AsianInvestor, noting that, despite publicly committing to engagement on environmental, social and governance (ESG), Asian asset managers remain conflicted.
For now, Active Super continues to be seen as a responsible investor by some industry bodies.
“Active Super is and continues to be a member of RIAA [the Responsible Investment Association Australasia], and has long been an active responsible investor,” a RIAA spokesperson told Asian Investor.
"ASIC has been clear on their expectations around greenwashing [since] June 2022, that claims being made must be substantiated and supported by the responsible investment strategies of the fund,” the spokesperson added.
RIAA is the leading membership body for the industry, with more than 500 members representing US$29 trillion in assets under management, across Australia and New Zealand.
A survey last year by the association found 72% of Australians are concerned that responsible investors engage in greenwashing.
In its 2022 Responsible Investment Benchmark Report published in September 2022, RIAA identified Active Super as a Responsible Investment Leader, a status awarded to those that achieve a score of 15 out of 20 or above on RIAA’s Responsible Investment Scorecard.
HOLDINGS IN QUESTION
Individual holdings disclosed by ASIC include Amcor Plc, a company which packages tobacco, Russian gas giant Gazprom and coal miner Coronado Global Resources.
Active Super had certified products with RIAA up until Decembers 2020, but does not currently do so.
“Active Super was found, at an organisational level, to have strong commitments to responsible investment, and were able to back these up with strong governance, reporting, and processes for implementation across their approach to ESG integration, manager selection and monitoring, and stewardship. However, this did not examine specific products or investment options,” it noted, on a blog about the ASIC case, on its website last month.
ASIC's claims against Active Super come after previous similar claims made against Mercer and Vanguard.
In February, it launched a court action against Mercer Super, claiming that several of the fund’s ‘Sustainable Plus’ investment options had investments fossil fuel companies, including those producing coal such as BHP Group and Glencore, as well as in 15 companies involved in alcohol production and 19 companies involved in gambling.
This was despite claims on Mercer’s website about investment exclusions on carbon intensive fossil fuels such as thermal coal, and companies involved in alcohol production and gambling.
In July, ASIC also launched a similar greenwashing suit against Vanguard in Australia saying it made false and misleading claims about its ESG fund Vanguard Ethically Conscious Global Aggregate Bond Index Fund, which did not exclude investments in companies with fossil fuel activities, including those with activities linked to oil and gas exploration, as claimed.
“We consider that the screening and research undertaken on behalf of Vanguard was far more limited than that being promised to investors, and we consider this constitutes another example of greenwashing,” ASIC deputy chair Sarah Court said at the time.