ASIC issues guidance to identify ‘greenwashing’ funds

The Australian Securities and Investments Commission (ASIC) has issued an information sheet to crack down on superannuation funds which fall foul of ‘greenwashing’.

Greenwashing was the practice of misrepresenting the extent to which a financial product or investment strategy was environmentally-friendly, sustainable or ethical.

In particular, ASIC highlighted issuers needed to:

• Use clear labels
• Define the sustainability terminology they use
• Clearly explain how sustainability considerations are factored into their investment strategy.

ASIC also urged consumers to look out for “vague or ambiguous language or exaggerated marketing claims that lack a reasonable basis to support them”.

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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.

“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.”

The Responsible Investment Association Australasia (RIAA) welcomed ASIC’s greenwashing guidance, saying it would help investment managers raise the overall quality of sustainable finance products in Australia and to better meet consumer expectations.

RIAA’s 2022 consumer study found 72% of Australians were concerned about greenwashing, with threequarters of Australians considering moving to another provider if they found out their current fund was investing in companies engaged in activities inconsistent with their values.

“Greenwashing undermines the integrity of the marketplace and the efforts of investment managers working hard to create and market products that adopt specific responsible investment approaches and have strong sustainability credentials," RIAA said.