ASIC commissioner Cathie Armour warned Australia’s directors to check that their company’s disclosure of climate change risks or their fund’s marketing of ESG-focused investment products accurately reflect what they do.
In an article posted on the corporate regulator's website on Wednesday, Armour cited the growing unease about the risks of greenwashing financial products which is when companies, green bond issuers, and funds make exaggerated claims about their ESG credentials.
The Commissioner warned that market players faced liability for misleading or deceptive conduct if false or misleading statements apply to financial products such as securities or interests in funds.
The problem is partly driven by market players label their products as green without any independent way to test that what this means and the lack of a single widely accepted green taxonomy.
ASIC is on a mission to stamp out the misreporting of companies’ environmental impact and is currently conducting a review to establish whether funds or companies that offer green products -are honest about the badge. Whether the products align with their promotion of these products; in other words, whether the financial product or investment strategy is as green or as ESG- focussed as claimed.
“The potential to mislead can arise as a result of the product issuer being unclear on what standards they use to assess the product as environmentally or socially responsible or overstating green credentials that are not sufficiently reflected in their operations,” she said.
Poses a threat
“Misrepresentation of such products poses a threat to a fair and efficient financial system. This misrepresentation distorts relevant information that a current or prospective investor might require to make informed investment decisions driven by ESG considerations.
Addressing this threat will improve governance and accountability in the market.
Amour noted that the issue of greenwashing has been recognised by international regulators as well as the International Organization of Securities Commissions, which has established a task force that covers greenwashing and other investor protection concerns,” she said.
“ASIC is participating in this task force.”
Armour said the European Union - which has been determined to find a way to stop greenwashing-has introduced a taxonomy that seeks to define which securities or fund activities are sustainable or climate-friendly.
The US Securities and Exchange Commission has also announced a task force to identify gaps or misstatements in ESG disclosures, as well as compliance issues relating to the ESG strategies of funds.
ASIC’s review of the extent to which greenwashing may be evident in funds management follows on from its review of climate risk disclosures by large, listed companies.
“While that review found improved standards of climate-related disclosure compared to our review a few years ago …it also found instances where sustainability-related disclosure by many companies carried a “marketing” feel.”