ASIC’s greenwashing regulatory guide decried as ‘outdated and vague’

Herbert Smith Freehills partner Andrew Bradley says ASIC’s greenwashing regulatory guide is old and is leading companies afoul through their ESG claims.

Companies interpreting their investment credentials based on ASIC’s guide are reportedly being penalised.

The corporate regulator’s key disclosure instrument for prosecuting greenwashing is outdated and vague, a key adviser to the superannuation sector says.

Herbert Smith Freehills financial services partner Andrew Bradley said the Australian Securities and Investments Commission’s Regulatory Guide 65 was complicating honest attempts by firms to state their ethical investment intentions.

Mr Bradley said the guide, published in 2011, had not been improved by ASIC’s recent intervention, when the regulator put out an information sheet warning the industry to lift its game on greenwashing.

Greenwashing is a term that refers to the exaggerated portrayal of a product’s environmental or social credentials, giving investors a false impression.

“ASIC has been asleep at the wheel for the last 10 years. Certainly there’s increasing demand for these types of products,” he said.

“They’ve got a regulatory guide that’s hard to comply with and over 10 years old.”

Mr Bradley said ASIC’s guide had some prescriptive requirements about ESG statements but “a lot more vague statements about whether issuers have to make a call if they’re requirements or guidance”.

“I’d like to see them clean this up and be really prescriptive. I’m thinking when we have legislation we almost have a checklist approach to compliance,” he said.

“When I look at RG65 it’s unclear what I need to do; I’m all for principles-based regulation but I don’t know which parts of this are regulation and which parts are guidance.”

This comes as ASIC claimed another win over alleged greenwashing claims, pinging Cruelty Free Super for its ethical investment claims.

ASIC deputy chair Sarah Court.

ASIC said Cruelty Free Super had claimed it was using screens to block investments that were in polluting and carbon-­intensive activities, financing or supporting activities that caused environmental or social harm and companies with poor corporate governance.

But after scrutinising the investment screen, ASIC found this was not true.

ASIC deputy chair Sarah Court said the regulator had taken action against Cruelty Free over concerns it was “potentially misleading consumers as to the extent of the investment screening being implemented”, warning the regulator was aiming to “make sure funds have the evidence to back their claims and are not promising ­exclusions that they can’t guarantee”.

Herbert Smith Freehills advised Cruelty Free Super in the case in which ASIC issued the fund’s trustees, Divesta, with a $12,320 fine. The move came not long after the regulator punished Vanguard for similar incorrect statements.

ASIC found the Vanguard funds were structured to exclude investments in the manufacture of cigarettes and tobacco products, but did not exclude companies involved in the sale of tobacco products.

ASIC has been warning for some time it will target greenwashing claims, and issued an information sheet in June.

Mr Bradley said ASIC should focus on reworking its guides on acceptable disclosures instead of focusing on issuing infringement notices.

“What I’d like to see is ASIC be really helpful and draw a line in the sand as to what is the appropriate practice in Australia and give industry some time to catch up,” he said.

“I’m not too fussed if we adopt a US or EU standard; some consistency would go a long way.”