In June, the Australian Securities & Investments Commission (ASIC), who regulates the way financial products are sold and distributed, released a new guidance urging managed and superannuation funds to consider whether their sustainability-related products are at risk of greenwashing. Demand and inflows into ‘green’ label products have been on the rise, as investors seek responsible investments to influence positive change in the world. According to the Responsible Investment Association of Australasia, responsible investment inflows increased A$298 billion to A$1,281 billion in 2020 while the remainder of the market decreased by A$234 billion to A$1,918 billion. Also growing is the number of investment managers engaged in responsible investment, which grew from 165 in 2019 to 198 in 2020.
The regulator’s guidance comes amid a lack of standardised labelling for sustainability-related products where terms such as 'responsible investing’, 'ethical investing' and 'impact investing' can mean different things to different people. ASIC's guidance instead circumnavigates this by emphasising two central themes: truth in promotion – using clear labels and well-defined terms; and, clarity in communication – providing clear explanations of how sustainability-related considerations are factored into investment strategies.
It warns issuers to be careful when using absolute terms such as ‘no gambling’ and to clearly state any exception or provisions to such claims if applicable, for example some funds may nominate a threshold limit of no more than a certain percentage of total revenue from gambling activities before it can consider inclusion in the fund. It also seeks to ensure any headline claims are not misleading and issuers are able to justify their ‘green’ label. ASIC has confirmed that greenwashing "will remain a priority area of focus" in 2022, a clear warning that it will not accept the misleading of investors in relation to sustainable investments.
The Australian Competition & Consumer Commission (ACCC) & Australian Securities Exchange (ASX) have also joined forces to crack down on companies and listed funds that claim to be ‘green’ but whose claims cannot be substantiated. The ASX will be imposing ASIC’s “true to label” condition before admitting funds for listing, including exchange traded funds. Separately, it will also be monitoring company disclosures and marketing over emission reduction achievements and net zero ambitions. According to Greenpeace, most of the country’s highest-emitting companies in the ASX 200 that have set net zero targets either have no firm plans to end or reduce their use of fossil fuels, or to commit to switching to 100% renewable electricity.
While the parameters that distinguish responsible investing from sustainable or ethical investing remain challenging to define, the efforts and framework provided to regulate ‘greenwashing’ should be commended. The impact will resonate throughout the whole investment chain and likely amount to heightened disclosures (and costs), but the clarity and transparency will benefit investors seeking to align their investment with their personal values.