ASIC issues guidance to prevent greenwashing

ASIC greenwashing

Investment managers and super funds have been provided with guidance to ensure any sustainability-related products they offer are not engaging in greenwashing.

The Australian Securities and Investments Commission (ASIC) has released guidance to help prevent superannuation funds from engaging in greenwashing when offering sustainability-related investment options to fund members.

ASIC provided the guidance via Information Sheet 271 – How to avoid greenwashing when offering or promoting sustainability-related products, which uses nine questions, and relevant examples, against which a product or investment option can be measured for greenwashing.

The corporate regulator stated the information sheet was for use by trustees of registrable superannuation entities, responsible entities of managed funds and corporate directors of corporate collective investment vehicles, as well as other entities that offer or promote financial products that take into account sustainability-related considerations.

In issuing the guidance, it stated it had undertaken a greenwashing review of a sample of superannuation and investment products and identified the need for better definitions regarding the sustainability terminology used and clearer explanations as to how sustainability considerations are factored into investment strategies.

Specifically, the information sheet questions if a sustainability-related product is true to label and if its name includes sustainability-related terminology, that those are factors clearly evident in the investment selection process.

The guidance also questions whether the use of terminology is vague and lacking clarifying information and if headline claims regarding sustainability are potentially misleading. Where clarifications or qualifications are required, they should be easy to find and consistent with other disclosures about the product.

In regards to the underlying investments, the incorporation of sustainability-related factors into investment decisions and stewardship activities, as well as the investment screening criteria, and any exceptions or qualifications, must be fully and clearly explained.

ASIC will also require product issuers and providers to disclose if they have any influence over the benchmark index for their sustainability-related products and explain the metrics in use related to sustainability.

ASIC deputy chair Karen Chester said: “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 (environmental, social and governance) 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.”

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