Unveiling the truth behind ‘green’ investments

13 September 2023
| By Industry |
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In an age where climate concerns and social consciousness dominate headlines, it's no surprise that investors are increasingly seeking investments that align with their values.

With several high-profile cases recently exposing alleged greenwashing practices, many investors are left wondering if they can trust a company’s sustainability claims. 

Four out of five Australians now expect funds in their bank account and superannuation to be invested responsibly and ethically. Likewise, 74 per cent said they’d consider moving to another provider if their current fund was investing in activities not consistent with their values.

With ASIC cracking down on greenwashing claims, and the recent Vanguard and Active Super cases highlighting the seriousness of false ethical allegations, investors need to better understand where their money is invested. 

Where is your super fund contributing to?

For many Australians, a significant portion of their investments lies within super funds. It is, therefore, crucial to understand how these funds are managed and whether your superfund aligns with responsible investing. It’s worth investigating your super fund provider’s ESG policies, how they choose their investments, and whether they can substantiate their claims. 

The good news is that standards are emerging globally that will, eventually, ensure that greenwashing is eliminated from financial products like super. Whether buying fairtrade coffee, free range eggs or purchasing green power, it’s important to know the product has legitimacy regarding its claims. 

In each of these cases there are detailed programs of assessment that are undertaken to ensure consumers are not misled and that products live up to consistent standards. The same is emerging for financial products, whereby consistent standards around labels, names and terminology are rapidly emerging to ensure finance companies are held accountable. 

Australia’s standards for financial products 

To date, the Responsible Investment Association Australasia (RIAA) has been the primary driver in lifting standards in the area of responsible and sustainable investment in Australia. For 16 years we’ve been responsible for a labelling program that requires the highest consistent standards, as a baseline for ensuring finance products are delivering on their promise and not misleading consumers. This program now has over 300 finance products certified, meeting the highest standards of transparency.

While this traction has been challenging on a broader scale, the industry is starting to take notice with the big end of town finally catching up, and ASIC recently taking steps to clarify what they expect from the green claims made by finance companies.

On a global scale, an agreement on the definitions of key terms is being finalised, through a project of the CFA Institute, the Global Sustainable Investment Alliance and the Principles for Responsible Investment. This project is a vital building block that will assist with the end of greenwashing. 

If we don’t define terms like ‘organic’ or ‘free range’ then we’re bound to see further unscrupulous companies using these phrases loosely. Likewise, defining the terms around responsible investment such as ESG, stewardship, negative screens and impact, will ensure there is less risk of them being misused. But this alone is not enough. 

The importance of the government’s upcoming Sustainable Finance Strategy 

We now know that most Australians want their retirement savings invested in an ethical and responsible manner, but increasingly consumers are also stating they want their investments to do further good. As people become more aware, greater responsibility sits with financial institutions to ensure they’re acting ethically and are communicating in a transparent honest manner.

Our consumer research shows that 84 per cent of people want their super fund to take action on climate change, such as reducing greenhouse gas emissions of the companies they’re invested in. Despite this, Australians know we have a big task ahead to achieve our net zero commitments by 2050 and to ensure the country does not suffer from severe droughts, floods, heatwaves and bush fires.

For our nation to do that, we have major investments ahead of us and we won’t achieve these climate targets without activating our finance sector.

The Treasurer’s forthcoming Sustainable Finance Strategy presents a monumental opportunity to ensure the finance sector is aligning in support of a clean energy future, in a manner that the bulk of Australians are calling for.

There’s an opportunity for the government to step up the sustainable investment product labelling requirements, in a manner similar to the UK and the EU, and to acknowledge the strong work already done in our market. In this strategy we need the government to provide a big injection of support, to ensure all products are meeting their sustainability promises.

Because no-one wants a caged egg, or an unethical super fund when they have chosen otherwise. To eliminate greenwashing, the government must deliver on the Sustainable Finance Strategy and ensure consumers can choose sustainable super funds with trust and transparency.

Simon O'Connor is chief executive of the Responsible Investment Association Australasia.

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