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CPA backs mandated ESG marketing reforms
CPA Australia is pressing the federal government to impose stricter rules on the naming and marketing of managed investment and superannuation products that claim to be “sustainable”, “ethical”, or “responsible”, warning that vague or untested claims are leaving investors exposed.
In a submission to Treasury’s consultation on sustainable investment labels, drafted alongside Chartered Accountants Australia and New Zealand (CA ANZ), the accounting body backed reforms that would mandate upfront and ongoing disclosures for products using sustainability-related terms.
It said that Australia should adopt a hybrid framework that is largely principles-based, but includes prescriptive elements such as minimum thresholds for assets aligned to sustainability objectives, along with clearer naming rules.
CPA said the approach would align Australia more closely with reforms underway in the UK and US, where at least 70 per cent of a product’s assets must be demonstrably consistent with its stated sustainability objective in order to qualify for certain labels.
Patrick Viljoen, ESG lead at CPA Australia, said consumers should be able to trust product labels and avoid falling victim to greenwashing.
“The market is awash with products that claim to be socially responsible. Consumers could understandably assess such claims as fair and accurate, under the assumption that they are underpinned by a robust regulatory framework that permits them,” Viljoen said.
“We need compliance obligations to catch up with consumer expectations.”
He told Super Review sister brand InvestorDaily that while CPA Australia does not support mandatory sustainability labelling in every circumstance, products that use terms such as “sustainable”, “ethical”, “green”, or “responsible” should face compulsory disclosure obligations.
“We do, however, believe that all customer-facing disclosures should be mandatory for any product that uses sustainability-related terms and could lead to undue costs or a restriction on investment options,” he said.
Superannuation gap
CPA and Chartered Accountants ANZ also warned that the government’s current review risks overlooking how sustainability objectives should be treated in superannuation, where financial returns have been placed at the centre of regulatory scrutiny under the Your Future, Your Super (YFYS) test.
The YFYS regime introduced APRA’s annual performance test, which benchmarks trustee-directed investment options against composite indices and applies a parallel test to fees and costs.
The accounting bodies said the test essentially measures how well trustees have executed their investment strategies relative to objective benchmarks, but does not account for products that pursue additional sustainability objectives.
“We are concerned that the scope of this review does not completely lend itself to the review of metrics such as sustainability objectives, where these are used in addition to, or in place of maximising financial returns,” their submission said.
The bodies added that while the superannuation test has itself raised issues, including questions over the adequacy of benchmarks and the risk of disincentives to active investment management, the broader problem is that managed investment schemes face no equivalent statutory benchmarking at all.
The absence of minimum standards means funds can market themselves as “socially responsible” even while holding controversial exposures.
“We consider that requirements should apply to all financial products that make sustainability claims, regardless of whether those claims are primary or secondary to financial returns. This ensures consistency and avoids regulatory arbitrage,” the bodies said.
Hybrid model
Overall, CPA Australia and CA ANZ’s preferred option is a hybrid regulatory model, combining principles-based flexibility with prescriptive elements such as asset thresholds, key performance indicators, and naming rules to provide clarity and enforcement.
“A principles-based framework with mandatory consumer disclosures, naming rules and benchmarking transparency will best support informed investor decisions,” the submission said.
Viljoen added that while stricter rules may impose additional costs in the short term, over time, market maturity would bring efficiencies.
“Such costs would reduce through efficiencies being eked out by market participants,” he said.
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