Investment funds that promote ethical investments and climate change action have become popular in recent years.

The Australian Securities and Investment Commission (ASIC) has warned the financial sector, including the funds, not to mislead investors with over-blown and inaccurate claims about sustainability, climate change and stopping species extinction.

The practice is called greenwashing. ASIC hopes to discourage the practice to maintain confidence in the sector.

The warning provides insight for investors and retirees about the questionable marketing practices some investment platforms promote to snare gullible environmental evangelical seniors.

ASIC hopes its warning against greenwashing will encourage transparency of information and trust, which are “paramount to ensuring investor confidence as the market for these products continues to develop and grow.”

ASIC says in response to investor demand, sustainability-labelled investments have more than doubled between 2019–21 in Australasia alone.  

Globally, Bloomberg Intelligence estimates environmental, social and governance (ESG) assets are projected to exceed US$53 trillion by 2025 and represent more than a third of total assets under management.

ASIC’s expectations and requirements to providers were recently issued as an Information Sheet on How to avoid greenwashing when offering or promoting sustainability-related products (INFO 271).

It aims to help superannuation and investment funds comply with existing regulatory obligations to avoid greenwashing.

ASIC says, “This follows our review of a sample of superannuation and investment products which identified some areas for improvement.”

The commission wants to ensure the promotion of sustainability-related products does not involve statements or conduct that “is misleading or deceptive, including disclosures in product disclosure statements”.

While the fact sheet focuses on superannuation and investment funds that issue sustainability-related products, it also contains several important takeaways for company directors.

This is information that investors should also know so they can best identify and avoid greenwashing practices.

Funds are urged to review their practices against the questions in the fact sheet “to ensure investors have adequate information to make informed investment decisions.”

By advising funds and providers along these lines, ASIC is concerned that greenwashing erodes trust by compromising truth in the promotion and advertising and not enhancing clarity in communication.

The fact sheet provides examples of practices that fall short of meeting current regulatory obligations.

There are nine questions that ASIC asks providers to measure themselves by. These indicate ASIC’s main concerns and can inform investors what to look out for:

• Have you used vague terminology?

• Are your headline claims potentially misleading?

• Is there a reasonable basis for a stated sustainability target?

• Is it easy for investors to locate and access relevant information?

A top-line warning: “Importantly, headline statements about a company’s green credentials should not be misleading.”  

Sustainability targets — such as net-zero commitments — require clear, time-based action plans to avoid breaching the misleading statement prohibitions.

If your company has set a sustainability target, you should clearly explain:  

• What your target is 

• How and when you expect to meet your target 

• How you will measure your progress milestones

• Any assumptions you have relied on when setting that target or when measuring progress

ASIC is participating in international moves by the recently established International Sustainability Standards Board (ISSB) to set baseline global climate and sustainability-related disclosure standards. These standards will support the information needs of investors in sustainability-related products.

ASIC says a global baseline is needed to avoid prohibitively costly disclosure fragmentation across jurisdictions. Several jurisdictions — including the United States, United Kingdom and New Zealand — have taken steps toward mandating climate disclosure. 

Writing to the funds, ASIC says, “To ensure your company is well placed to transition to any future ISSB standards applied in Australia, we recommend:  

• Adopting the recommendations of the G20 Financial Stability Board’s Taskforce on Climate-related Financial Disclosures (TCFD) as the primary framework for voluntary climate change-related disclosures  

• Keeping up to date with international standards for climate disclosure.  

Greenwashing is now an established area for ongoing focus and regulation.

“We are continuing to monitor the market and will look for misleading claims about sustainability-related investments,” ASIC warns. 

If you see or suspect greenwashing, alert ASIC.

For further reading: ASIC