ASIC secures back down from Cruelty Free Super in ‘greenwashing’ action

The super group has forked over $12,320 to ASIC after the corporate regulator took aim over its ethical investment claims.

Cruelty Free Super has forked out $12,320 to ASIC after the corporate regulator took aim at its ethical investment claims.

A third company has waved the white flag after the corporate regulator took aim at Cruelty Free Super over alleged greenwashing and overstating of its ethical investment priorities.

Cruelty Free Super, which is backed by Diversa Trustees, paid the Australian Securities and Investments Commission $12,320 over the alleged greenwashing but made no admission of guilt or liability under the terms of its deal with the regulator.

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

ASIC had taken aim at Cruelty Free Super claiming the fund had oversold the screens it used to guide its investment strategy to potential members.

The regulator found Cruelty Free Super had told potential members it was not investing in companies involved in polluting and carbon intensive activities, financing or support of activities which cause environmental and social harm and poor corporate governance.

The Sydney-based group applied some of these investment schemes to its assets, but they were more specific and implemented on a more limited basis than suggested on the website, according to ASIC.

Cruelty Free Super had been making the claims since at least September 1, 2020.

The regulator found Cruelty Free Super’s claims it did not invest in companies engaged in “polluting and carbon intensive activities” was a false and misleading claim.

“The screens applied do not assess or seek to exclude companies engaged in “carbon intensive activities” or “polluting”, outside of the context of the destruction of “valuable environments”, ASIC found.

Cruelty Free Super had a total of $97.3m invested across its portfolio, according to the fund’s June disclosures.

Cruelty Free Super has paid ASIC $12,320 after the corporate regulator took aim over its ethical investment claims.

The regulator also took issue with Cruelty Free Super’s claims about its investments in companies which “engage in financing or support of activities which cause environmental or social harm”.

ASIC found the screen applied to this investment category only excluded companies involved in predatory lending products and services and did not attempt to capture other lenders.

Cruelty Free Super’s claims that it did not invest in companies which had “poor corporate governance” was also targeted by ASIC, who found this only excluded companies “subject to significant controversy contrary to the expectations of investors. Particular consideration is given to controversies involving the welfare of animals”.

The deal, which saw Cruelty Free Super pay ASIC’s costs, was brokered with advice from Herbert Smith Freehills.

ASIC deputy chair Sarah Court said the regulator had concerns Cruelty Free Super was making overly broad statements that were “potentially misleading consumers as to the extent of the investment screening being implemented”

“As consumers increasingly look to more sustainable and ethical investing, including via their superannuation, ASIC wants to make sure funds have the evidence to back their claims and are not promising exclusions that they can’t guarantee,” Ms Court said.

The case against Cruelty Free Super comes after ASIC took similar action against Vanguard Investments over its product disclosures statements on the exclusions on its index funds, finding they were liable to mislead the public by overstating an exclusion.

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.

Vanguard paid ASIC $39,960 in a deal which saw no admission of guilt or liability.

ASIC has been targeting greenwashing claims since laying down the law to industry in June this year.

The regulator warned it would be scrutinising poor reporting practices and environmental, social and governance disclosures.

This followed an extensive review of superannuation and investment products which identified several companies were failing to clearly disclose investment criteria or define the sustainability terminology being used.

Australian Ethical Investment head of ethics research Stuart Palmer said Australian Ethical’s investment disclosure approach was to “align what we say with the actual mechanics of our longstanding ethical investment process”.

“We align our disclosures with the way our ethical research defines our investment universe for our superannuation and managed funds, as well as supporting our ethical engagement with companies,” he said.

“We publish information about our ethical criteria for different sectors of the economy, like energy, food, real estate and transport.”

“We report on our ethical stewardship activity, like our engagement with banks and developers to better assess the environmental and animal impacts of their lending and greenfield developments.”

DWS, Deutsche Bank’s asset management subsidiary, has been battling with regulators after German police raided the company earlier this year over greenwashing claims.

The company was forced to dump its chief executive, Asoka Woehrmann, in the wake of the raids.

DWS’ new CEO Stefan Hoops had pledged to resolve the investigations and dumped the “smart integration” system at the centre of the ESG investigations.

This saw DWS slash its ESG assets by 75 per cent in its recent annual report.

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