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Avoid ‘greenwashing’: INFO 271
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ESG
To avoid greenwashing, superannuation companies need to use clear labels, define sustainability terminology and clarity about how sustainability is factored into investments.
This is according to the Australian Securities and Investments Commission (ASIC) last month when they released Information Sheet 271 last month.
ASIC Deputy Chair Karen Chester said in an official statement, “Our information sheet is simply about helping issuers comply with their existing regulatory obligations. Labels or headline statements about a product’s green credentials should not be misleading.
The Deputy Chair added, “Being ‘true to label’ is not a nice-to-have, it’s a regulatory must-have.”
The securities and investments regulator has indicated that greenwashing would be particular area of focus for the regulator.
Keeping an eye on an evolving area
ASIC Commissioner Sean Hughes said in an official statement, “This [greenwashing] is clearly an evolving area, which is attracting attention from investors, funds and policy-makers alike. ASIC will continue to monitor sustainability disclosure practices and will make changes to INFO 271 to ensure our information remains relevant, contemporaneous and useful.”
The information sheet on greenwashing is not the only guidance shared by the regulator since the issue of greenwashing in the is just fragment of intersection issues for the regulator.
‘Greenwashing’ is related to general issues around disclosure, product disclosure statements and the advertising and sale of financial products.
Greenwashing, Competition and Consumer Protection
ASIC is not the only Australian regulator looking at the detrimental impact that greenwashing can have.
Australian Competition and Consumer Commission (ACCC) Chair Gina Cass-Gottlieb has also highlighted greenwashing as critical issue.
She said in official statement last month, “As part of our Compliance and Enforcement priorities we will be looking closely at greenwashing and sustainability claims by businesses. This priority is aimed at addressing concerns that businesses are falsely promoting environmental or green credentials to unfairly capitalise on increasing consumer demand for products or services with these benefits.”
Cass-Gottlieb stressed that it important that customers can have trust in an entity’s ‘green claims.’
“As part of this priority work, we will also conduct various education and compliance activities to enhance business awareness of their obligations in making green claims. Businesses are required to be able to substantiate any environmental claims they make.”
Managing and Mitigating the Exposure
Earlier this year, Deloitte published Greenwashing risks in asset management: Staying one step ahead highlighted that the issue of greenwashing is larger conduct risk. Even with the right governance and controls in place greenwashing or the perception of greenwashing might still happen:
This could happen if investment decisions are based on sustainability data which is currently often non-standardised and incomplete, and/or the firm’s communications are not clear about what sustainability terminology means in the specific context of the firm and its funds.
The report continues:
Responsibility for addressing the risk of greenwashing extends well beyond firms’ compliance and risk functions. Firm and fund boards will need to consider this risk in the context of setting firm-wide and fund specific strategies for issues such as sustainable investing and the use of sustainability data from third parties. Implementing effective strategies at fund level should reduce greenwashing risk
Deloitte’s report was written in the context of the EU initiative Sustainable Finance Disclosure Regulation (SFDR), but the issue of clarity around labels, terminology and how sustainability factors into investments is becoming a perennial issue.
The conclusion the paper echoes ASIC’s calls for clarity:
Ultimately, thorough fund documentation that draws clear links between fund names, objectives, and strategies, and is in turn backed by clear and comprehensive firm-wide policies is at the core of mitigating greenwashing risk. This should be supplemented by robust due diligence of sustainability data. A collaborative effort between portfolio managers, marketing/sales functions and compliance/risk functions is required to ensure that any misalignment between objectives and strategies, and potential for confusion and exaggeration, are identified and addressed promptly.
ASIC Deputy Chair Karen Chester explained, “Transparency and trust are paramount as the market for these products continues to develop and grow.”
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