With growing funds under management in ESG themed investment products, ASIC undertook a thematic review into greenwashing, looking into the disclosures of selected managed funds and superannuation funds.
Following this, ASIC released Information Sheet 271: How to avoid greenwashing when offering or promoting sustainability-related products.
The purpose of the information sheet is to help entities avoid ‘greenwashing’ when offering or promoting sustainability-related products. The publication also seeks to 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. Combatting greenwashing is vital for the efficient functioning of financial markets, so that the demand for capital to be directed toward investments that are truly meeting sustainability objectives can be properly met.
ASIC’s intent with the information is to restate existing legal obligations and ASIC guidance, addressing greenwashing within the existing framework. In particular, the information sheet outlines ASIC’s conduct expectations around what avoiding making statements that are false or misleading, or engaging in dishonest, misleading, or deceptive conduct in relation to a financial product or service.[1]
The information sheet’s primary approach is to ensure funds clearly define any sustainability related terms that they use, and appropriately disclose definitions and evidence (including qualitative and quantitative data) to back up labels used in a way that is easily accessible and understandable to investors.
The information sheet may also inadvertently change disclosure expectations and misunderstand investment practices typically undertaken by investment managers. For instance, the information sheet’s definition of a ‘sustainability product’ covers all investment products and does not differentiate between ordinary funds that take ESG matters into account as part of ordinary risk management and maximising returns, and funds that promote sustainability related considerations or target sustainability investments.
Indeed, even for products that promote a particular sustainability focus, the level of disclosure that the information sheet requires around metrics and data could set a higher disclosure standard for sustainability strategies compared to other active management strategies.
Another way the information sheet may inadvertently change disclosure expectations is in its understanding of the use of screening thresholds. ASIC reasonably states that where funds make exclusion claims, they should clearly disclose the details of screening thresholds applies. In the examples the information sheet provides examples around a ‘no gambling fund’ or a fund that states ‘we do not invest in tobacco’, it applies a high threshold for a fund to be able to reasonably claim it has excluded particular investments that do not meet its sustainability goals.
The FSC will continue to engage with ASIC and policymakers on combatting greenwashing and achieving greater consistency and accuracy in fund labelling. Early next month, the FSC will be releasing guidance on climate risk disclosure, which includes guidance for funds making net zero commitments, reporting climate risk, and applying climate-related sustainability labels.
[1] Corporations Act 2001 ss1041E, 1041G and 1041H, ASIC Act 2001 ss 12DA and 12DB.
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