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22-141MR How to avoid ‘greenwashing’ for superannuation and managed funds
ASIC has released an information sheet to help issuers avoid ‘greenwashing’ when offering or promoting sustainability-related products. The publication will also assist issuers to provide investors with the information they should have to make informed decisions.
ASIC considers ‘greenwashing’ as the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical.
ASIC undertook a ‘greenwashing’ review of a sample of superannuation and investment products and identified some areas for improvement. In particular, issuers in their disclosure and promotions need to:
- use clear labels
- define the sustainability terminology they use
- clearly explain how sustainability considerations are factored into their investment strategy.
ASIC Deputy Chair Karen Chester said, ‘Managed funds and super funds are responding to the increasing investor demand for sustainability-focused investments. Investors are not only motivated by their values here, but also by long-term financial returns.
‘Transparency and trust are paramount as the market for these products continues to develop and grow. In our region alone, sustainability-labelled investments have more than doubled between 2019 and 2021. While globally, ESG assets are projected to exceed US$53 trillion by 2025 and represent more than a third of total assets under management.
‘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. Being ‘true to label’ is not a nice-to-have, it’s a regulatory must-have. It’s also a must-have for investor confidence and trust. And a must-have for both fair and efficient market outcomes here. Misdirected investment here will inevitably be at great economic cost.
‘We have set out 9 important questions for issuers to ask themselves. We would hope and indeed expect issuers to review their practices against our information sheet,’ Ms Chester said.
ASIC Commissioner Sean Hughes added, ‘This is and will remain a priority area of focus. ASIC is continuing to monitor the market and will be looking for misleading claims about ESG and sustainability.
‘We are also appealing to industry and investors to alert us if you see suspected greenwashing in financial products.’
ASIC has also published new information to help investors assess if their values and goals align with a sustainability-related or ESG product.
Commissioner Sean Hughes said, ‘In weighing up investment options that suit their values, we encourage consumers to look out for vague or ambiguous language or exaggerated marketing claims that lack a reasonable basis to support them.’
‘This 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.’
Information Sheet 271: How to avoid greenwashing when offering or promoting sustainability-related products
ASIC regulates the way financial products are sold and distributed and the conduct of issuers offering financial services. Existing regulatory guidance sets out how issuers should meet their related obligations:
Regulatory Guide 65 sets out ASIC’s guidelines on how product issuers can meet their obligations under the PDS requirements to disclose how labour standards or environmental, social or ethical considerations are taken into account in investment decision making.
Regulatory Guide 234 contains good practice guidance when advertising financial products and services.
Regulatory Guide 168 gives policy guidance on preparing a PDS that complies with the PDS requirements.
In the 2020-21 Corporate Plan, ASIC indicated it would undertake a review to assess whether product issuers were engaging in ‘greenwashing’ that results in consumer harms.
Issuers means responsible entities of managed funds, corporate directors of corporate collective investment vehicles (CCIVs), and trustees of registrable superannuation entities.
ASIC is also engaged with international developments in this field and supports the International Sustainability Standards Board giving priority to a standard on climate-related disclosures.