Super time for ASIC to probe ‘greenwashing’

The regulator’s case against the Mercer Super group becomes highly relevant if big super funds are directed into ‘green’ investments.

The regulator says “greenwashing” is one of its 2023 enforcement priorities.

Don Russell, the chairman of the biggest super fund in the country, AustralianSuper, has suggested the plan to double the tax on large amounts in super is a chance to “tidy up” the system.

As the government leans on big super funds to invest in new areas such as climate transition, a landmark probe by the consumer regulator into “greenwashing” could offer a second opportunity to tidy things up.

For some conservative investors, big funds making non-financial decisions with their money may be unwelcome, but if that money goes into investments that are merely pretending to be green – or socially aware – that’s much worse.

Inside the super system the stakes are raised since every working Australian must -- by law -- hand over more than one dollar in 10 to compulsory super under the Superannuation Guarantee Charge. The SGC moves up to 11 per cent on July 1.

ASIC’s ambitious move to bring the Mercer Superannuation group to court over alleged misleading statements about the sustainable nature and characteristics of some of its superannuation investment options’ is clearly focused on investments classified as ‘ESG’ (Environmental Social and Governance) that allegedly do no make the grade.

Usefully, ASIC actually spelled out the names of the listed companies that were held in Mercer’s Sustainable Plus opinion. They include some companies most unlikely to be in any “green fund” such as multinational commodities house Glencore and ASX-listed Whitehaven Coal.

The Australian market leaders in the ESG space – such as Australian Ethical – have been calling for tightening standards on all ESG related products to stamp out greenwashing.

But the very notion of ESG itself is now facing pressure, especially in the US.

The American debate is evolving quickly with the world’s biggest investment manager – and leading EGG advocate – BlackRock recently facing $US4bn ($5.9bn) in withdrawals from conservative groups.

Investors against ESG suggest that the sole purpose of retirement funds should be to create income for investors, they classify anything beyond that space such as nation building, energy transition or social housing as beyond the frame.

The Wall Street Journal reports this week that a “dozen states considered anti-ESG legislation last year and at least 16 are doing so this year.”

In taking on Mercer, ASIC has chosen a high profile, respected target at the core of the investment industry which is widely influential.

But there have been plenty of related incidents put on the record in recent times. Again, they include some very big names including an infringement notice against index-fund empire, Vanguard.

The importance of the Mercer case is clear from ASIC’s statement that it is the first time since the Hayne Royal commission it has used its enhanced powers to take an action of this nature. The regulator also says “greenwashing” is one of its 2023 enforcement priorities.

How bad is the problem? Research from the Responsible Investing Association suggests that 90 per cent of the Australian investment market participants claim to be “responsible” but then further research shows only 40 per cent are engaged in so-called “leading practice”.

In a useful publicity stunt to show how easy it can be to mislead investors the UK research group Behavioural Insights created fake advertising for fake “green” companies in 2022 – the survey found the majority of consumers who viewed the adverts were fooled by the claims.

Better ESG outcomes are highly desirable and investors -- especially big super funds such as Australian Super -- should be well informed on authentic ESG investments under a credible standards system. We are nowhere near that point yet.

In December last year Chalmers spelled out how the regulatory agencies should be clamping down on greenwashing and bringing the local market up to international standards.

Then earlier this year he unveiled a grander plan to get big super funds to seek a “double dividend” of investing for returns and social outcomes.

Certainly, the outcome of the ASIC case – especially any illustration it gives of the scale and scope of “greenwashing” in and around domestic superannuation funds – will directly influence the Treasurer‘s wider effort to direct super funds beyond strictly financial targets.