ASIC laying down the law on ESG greenwashing claims

ASIC is closely watching ESG cases winding their way through the court as the regulator moves to lift its focus on greenwashing.

Gas giant Santos has been the target of protest and court action over its ESG claims. Picture Matt Turner.

The corporate regulator says it is scrutinising poor reporting practices it describes as greenwashing as officials lays out its expectations of how companies should deal with environmental, social and governance disclosures.

The Australian Securities & Investments Commission – in releasing an information sheet on the matter on Tuesday – said it was attempting to lift the quality of ESG reporting from fund managers and superannuation funds.

Greenwashing is the portrayal of a product’s environmental or social credentials, which creates a false impression to investors.

DWS, Deutsche Bank’s asset management subsidiary, replaced its chief executive, Asoka Woehrmann, this month – hours after a German police raid as it probed alleged greenwashing.

Assets tied to ESG investing strategies are expected to rise to around $US50 trillion ($70 trillion) by 2025, according to estimates by Bloomberg.

The ASIC document follows the conclusion of an review of superannuation and investment products which identified areas of improvement around disclosures. The regulator has warned companies ought to use clear labels around ESG disclosures and define the sustainability terminology they use. The regulator has also calls on fund mangers to clearly explain how they factor in considerations around ESG into their investment strategy.

Karen Chester, an ASIC commissioner, said the regulator was keenly aware of the increased demand from investors for sustainability-focused investments.

“This (document) also signals where we may look carefully and closely going forward,” she said.

“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. A must-have for both fair and efficient market outcomes here. Misdirected investment here will inevitably be at great economic cost,” Ms Chester added.

The Responsible Investment Association of Australia said the guide would raise the quality of sustainable finance products and clarifies obligations and laws for fund managers.

RIAA chief executive Simon O’Conner said greenwashing posed a real threat to sustainable finance. “We welcome the focus on greenwashing by ASIC which reinforces that, by law, any investor making a sustainability claim must be able to substantiate this and provide supporting evidence,” he said.

“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.”

ASIC has also taken a keen interest in several cases around ESG disclosure currently making their way through the court.

Santos was set to appear in the Federal Court on Tuesday after the Australasian Centre for Corporate Responsibility took aim at it for allegedly misleading consumers over its claims to investors that it would produce clean energy and that it had a clear pathway to reach net zero emissions.

Commonwealth Bank has also been taken to task by shareholder Guy Abrahams over its financing of oil and gas projects.

The regulator has released several guides for product issuers to prepare guidelines and spruik their ESG credentials within the rules. However, no standard wording or labelling is used for sustainability related products.

ASIC is to meet with the Australian Prudential Regulation Authority and the Reserve Bank this week to discuss their approach to the International Sustainability Standards Board, the standard on ESG disclosure.

ASIC commissioner Sean Hughes said there was a lot of work being done to prepare standards.

“We would like investors to come forward and alert us to these concerns where they may have invested in something which doesn’t meet their sustainability objectives,” he said.