Stephen Jones signals looming ASIC crackdown on greenwashing

Assistant Treasurer and Financial Services Minister Stephen Jones made it clear ASIC plans to wave a very big stick at the problem.

He has made it clear that his government will take a tough approach on “greenwashing”.

In a speech to the annual conference of the Australian Council of Superannuation Investors, he said the government had given the Australian Securities and Investments Commission (ASIC) another $4.3m to continue to focus on greenwashing.

“Greenwashing corrodes the credibility of sustainable finance markets,” he said.

“If there are companies out there making ­misleading claims, saying their ­offerings are greener than they really are, they’re getting a leg up on everyone else who is doing the right thing.”

ASIC has taken action against several leading names, including US index fund giant Vanguard last year and a more serious action against Mercer Super for greenwashing this year, following up with action this week against super sector newcomer Future Super.

“Sustainable business strategy must start in the boardrooms and investment committees, not in marketing departments,” Jones said. “Greenwashing is already one of ASIC’s priorities,” he said.

“Market participants are acutely aware of this focus. We want them to have the resources to do it right.”

The extra funds would allow ASIC to increase its surveillance of suspected greenwashing by listed companies, superannuation funds and investment managers.”

It would also allow the regulator to “pursue larger and more complex matters, further clarifying market expectations and deterring misconduct”.

As Jones pointed out, the ­action being taken by ASIC is about enforcing the existing law – catching out those companies who are making false or misleading statements about their green credentials.

And in this era of enthusiasm for green investing and ESG pressure on companies and funds, who could criticise a minister for being “tough on crime”?

But as the chief executive of $70bn retail industry super fund Rest, Vicki Doyle, also pointed out the slow pace of regulation around ESG disclosures in Australia compared with other economies, particularly in Europe.

She said there could be dangers in focusing on waving the big stick before a more structured set of ­disclosure and reporting standards has been developed.

Winding up ASIC to become a pitbull against greenwashing ­before there were reasonable standards and guidance for companies and funds on the rules and regulations around disclosure and commenting on green issues could be putting the cart before the horse, Doyle waned.

The concern was that there was “more of a compliance mindset (in Australia) over the next couple of years” against greenwashing, “when what we actually need is to be spending the time and resources on setting the ­standards for companies to put capital (in green investments) if they feel confident and for ­investors to build confidence to support them with capital, and not get those two things out of sequence”, Doyle said.

Doyle’s comments were a frank warning from inside the walls of a major institutional investor – a concern that funds or companies wanting to “do the right thing” when it comes to ­investing more sustainably, might be deterred from doing so for fear of making a mistake or making a comment, which could leave them open to a whack from ASIC.

Being so overtly tough on greenwashing crimes, well ahead of more formal disclosure frameworks and standards, has overtones of the criticism of Optus by the government last year for being the victim of a cyber attack.

The first response of the Albanese government was to blame Optus management and to talk about the need for higher penalties against cyber crime.

While the latter was overdue, there was also a need for government and the corporate sector to roll up their collective sleeves and work together to combat what later became obvious was a much broader problem, which was also to face other companies as well.

The Albanese government is looking at issues around mandatory disclosure by companies of their exposure to climate change risks and the development of a “taxonomy” or common language standard to measure what is green and what is sustainable, but these are still some way off.

Doyle pointed out the contrast between the current “tough on crime”, compliance based approach through ASIC and the long delays in developing the framework needed for global standards of disclosure.

Jones, of course, is talking about using existing law for ASIC to shine a light on companies and funds which may be blatantly ­misleading in their claims and documentation regarding their green credentials.

But as some other informed observers of the sector, such as Morningstar’s Australian based ESG analyst Erica Hall said there was also a danger of “green hushing” – of funds and companies retreating from discussing their green credentials.

In the meantime, each action by ASIC against companies – and it seems there could be a lot more to come – will effectively produce a “case law” on what is allowed and not allowed under the current Australian law when it comes to claims about being green.

But action by ASIC should not be seen as the “easy nick”, which allows the government to be seen to be doing something on climate change with a quick ­return, at a time when more comprehensive, constructive policy ­action is also needed for Australia to catch up with global standards.