ASIC releases greenwashing guide: could mandatory international reporting be on the horizon?
20 June 2022 at 12:53 pm
Sustainable investment is big business, likely to exceed US$53 trillion globally by 2025. It is time to streamline ESG reporting in Australia to avoid greenwashing and ASIC is doing just that.
In the Asia-Pacific alone, environmental, social and governance (ESG) investments have more than doubled between 2019 and 2021. Globally, ESG assets are projected to represent more than a third of all assets under management.
Given the sheer scale of the sector, its growth trajectory and a number of ongoing investigations, Australian Investments and Security Commission (ASIC) has now published an official information sheet on greenwashing in the ESG space, seen by some as a veiled warning to those not following the Corporation Act to the letter.
It was released last Tuesday and outlines how to avoid greenwashing when offering or promoting sustainability-related products.
ASIC defines greenwashing as the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical.
The sheet provides clarification on the existing obligations and laws investors should comply with to avoid greenwashing, including what disclosures they should be making and how to avoid making misleading claims.
Executive manager of programs at RIAA Estelle Parker (pictured) said the guidelines, which are closely aligned with RIAA’s current guidelines for certification, are a welcome development.
“About 18 months ago ASIC started seriously looking into greenwashing in the ESG investment space,” Parker said.
“By releasing the INFO 271 sheet, ASIC is sending out a warning shot.
“It is clearly setting out what the expectations of the regulators are and what funds need to do to comply with existing law. For us, it is setting quite a high bar which is fantastic. It is saying if you make claims there is a burden on you to be able to substantiate those claims.”
Parker said RIAA saw the greenwashing guide as a first step towards uniform international ESG reporting within Australian Law.
She pointed out that ASIC was very clear in outlining how to interpret obligations under the Corporations Act, and also referenced the International Financial Reporting Standards (IFRS).
“Our certification requirements align with IFRS Foundation ESG standards and we see this as a very good sign that ASIC can see the benefits in international guidelines around reporting,” Parker said.
“Moving forward, we would encourage the government to consider eventually making reporting against these frameworks mandatory, but that is now in the hands of the treasury.”
ASIC’s INFO 271 greenwashing guide
INFO 271 outlines a basic guideline including:
- using clear labels;
- defining the sustainability terminology the firm uses; and
- clearly explaining how sustainability considerations are factored into its investment strategy.
Deputy chair of ASIC Karen Chester said the corporate watchdog had recognised that managed funds and super funds were responding to the increasing investor demand for sustainability-focused investments and it was clear that accurate representation was not a “nice-to-have”, but a regulatory “must-have”.
“Transparency and trust are paramount as the market for these products continues to develop and grow,” she said.
“Our information sheet is simply about helping issuers comply with their existing regulatory obligations.
“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.”
ASIC commissioner Sean Hughes made no bones about it, adding in a statement that greenwashing 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.
