ASIC gears up for crackdown on ‘egregious’ cases of greenwashing

ASIC deputy chair Karen Chester has warned the conduct regulator will take enforcement action in ‘egregious’ cases of greenwashing.

Australian Securities & Investments Commission deputy chair Karen Chester. Picture: David Geraghty

The corporate watchdog is gearing up to take enforcement action in “egregious” cases of greenwashing, as Australia and the rest of the world prepare for harmonised sustainability standards.

Australian Securities & Investments Commission deputy chair Karen Chester said the regulator had released an information sheet to ensure that people were aware of their legal obligations “because we’re watching”.

“There will be different ways we’ll deal with (breaches) – some people might get a telephone call when they put out a prospectus and there’s a statement that we think is marketing or aspirational and we’ll give them a nudge and they might fix it,” Ms Chester told an Australian Institute of Company Directors conference.

“Where we see some egregious examples of greenwashing and we think that there’s harm from that, then we’d probably look at taking some enforcement action.”

The AICD conference coincided with draft rules from the London-based International Sustainability Standards Board, which was established at the United Nations Cop 26 conference in Glasgow to develop a comprehensive global baseline for sustainability disclosures.

A group of the nation’s top professional, industry and investor bodies with $US33 trillion in assets under management backed the exposure drafts.

The group, which includes the Australian Banking Association, the Australian Council of Superannuation Investors, Chartered Accountants and CPA Australia, said that clear, transparent, comprehensive and comparable disclosure of sustainability-related information was part of a functioning global financial system.

“To avoid large-scale financial risks from a disorderly transition to net zero emissions and the physical impacts of climate change, there must be clear and comparable disclosure of sustainability-related and in particular climate-related information,” the group said.

Ms Chester said the world was at an “incredible turning point” with the emergence of the ISSB exposure drafts.

ASIC, she said, had undertaken surveillance of ASX 200 companies, with 103 already reporting voluntarily under the previous template put together by the Taskforce on Climate-Related Financial Disclosures.

The surveillance showed that even the nation’s larger institutions still had “a way to go”.

“It’s all about getting ready for climate disclosure standards and the global baseline,” Ms Chester said.

“And it matters to all companies and all directors, not just listed, because it will eventually affect everybody.”

Two key facts, she said, explained her confidence that compliance with uniform global standards was inevitable.

First, 80 per cent of world GDP was now covered with net zero commitments.

Second, management consultancy McKinsey had estimated that $US9 trillion was required every year for investment in the decarbonisation of physical assets alone.

“Where boards will get it right is when they’ve prepared for the transformation now,” Ms Chester said.

“So if you haven’t looked at TCFD in terms of how you approach your governance and risk management, financial reporting and your metrics and targets, do so yesterday.”

She urged boards to be frank with investors, outlining their companies’ assumptions, challenges and how they proposed to deal with them.

Regulators would give a “big tick” to such an approach because transparency was key, as opposed to the “glass half-full” narrative.

Fortescue Metals Group director Penny Bingham-Hall said institutional investors were strongly advocating for companies to have a pathway to net zero carbon emissions, as well as a sound reporting structure.

There was little difference, she said, between the public and private markets.

“If you want to attract money, whether it’s through banks or private equity, the demands are still going to be there,” Ms Bingham-Hall said.

“It’s going to be across the board, even not-for-profits, government organisations – every organisation is going to need to deal with this in some shape or form.”