E ngā mana, e ngā waka, e ngā reo, e rau Rangatira mā,
Tēna koutou katoa,
Many thanks for having me along to speak to you today, and a big thank you to Estelle Parker, Dean Hegarty, and the other RIAA staff for hosting this event. It’s a pleasure to be here, and to speak on this issue of great importance to the FMA – why? Because it is essential that investors clearly know what they’re buying. When it comes to ethical or sustainable investment, preventing greenwashing is crucial. Greenwashing – misrepresenting a product’s ethical or environmental impact – damages trust in the market and can mislead investors into making decision based on false claims.
Impact of Greenwashing in Markets
Greenwashing erodes confidence in the market and undermines trust in sustainable investment products. Transparency and preventing misleading practices, like greenwashing, are central to maintaining the integrity of New Zealand’s financial markets. Many of you will be familiar with last year’s Responsible Investment Benchmark Report revealing that responsible investment funds reached a record $183 billion in 2022, ahead of traditional funds for the first time. Demand is growing and maturing. According to RIAA’s 2024 report, more consumers support responsible investing than ever before. Now, more than three quarters of Kiwis (77%) surveyed agree or agree strongly with the statement “I expect my KiwiSaver or investment fund will be managed ethically and responsibly”, an increase of 3% from last year. More than half of the respondents say they would consider moving their fund if it was investing in companies that engage in activities that do not reflect their values (57%).
Our own internal estimates show that virtually all KiwiSaver and three-quarters of other funds under management now adhere to some form of ethical investment policy. This trend points to increased interest in ethical and sustainable investment options. However, it also emphasises the need for transparency and openness to ensure these funds’ claims align with what fund managers are doing in practice.
Yet, people are still finding the category difficult to navigate. We commissioned a survey in 2022 of New Zealanders about their experience with ethical investments. We found that people find the category filled with difficult language they feel isn’t designed for non-professionals. We heard that many people find exploring ethical funds ‘impenetrable,’ ‘daunting,’ ‘overwhelming’ and feel that they lack support – largely unaware of the resources available to help them. Some people tackle this head-on – knuckle down and get into it, while others look for simple signpost language to help them, and others simply procrastinate. The upshot from these findings is a clear demand for greater clarity and transparency around disclosures.
What we’re seeing in the NZ Market
Last week, we published a short document setting out what we’d seen in the market and the work we’ve done in this space since our thematic report two years ago. As we’ve done in other recent publications such as our financial advice monitoring report, we talked about both the good and the bad. That’s deliberate, because we know from speaking to industry that firms and senior leaders want to know where to improve, but also learn from best practice. So, what did we find?
Well, there has been both a rise in interest in ethical investing but also confusion among investors over the terms and claims used by firms. The people who provide you with the capital to invest rely heavily on you to deliver on their promises but often struggle to find good information to support their decision to make an ethical investment.
While we haven’t found misuse of ethical labelling warranting enforcement action, our view is that there remains a need for greater clarity and certainty regarding disclosures. Issuers must be clear about their ethical commitments, deliver on them, and report transparently on their progress, even when challenges arise. This level of transparency is key to building trust from the outset and avoid the risk of significant negative consequences when ethical claims fall short.
Challenges Faced by Regulated Entities
All of us in this room know that complying with ethical investment regulations can present challenges. Investing ethically is complex, and there are no universal standards. That is one of the reasons why the FMA’s approach is as it is: to engage with firms proactively to address issues as they arise, and to provide updates and guidance as needed to assist the market.
In our dealings with firms, I know many are making significant efforts to promote transparency and embed ethical investment principles in their products. The industry’s commitment is encouraging. However, as the market grows, so does the need for vigilance to ensure that our efforts align with the expectations of investors and broader society.
FMA’s Role in Responding to and Preventing Greenwashing
So, what are we looking for moving forward? All the research we see tells us that ethical investing is important to investors – it’s a factor that influences their investment decisions. This means it’s important that fund managers are clearly and truthfully describing their ethical investment policies. As ethical investing continues to develop, maintaining high standards of disclosure will be essential to preserving trust.
Response to greenwashing is a relatively undeveloped area and I accept there are significant differences in approach, practice and terminology used by both regulators and market participants in different jurisdictions. The FMA’s preference is to work with market participants to provide clear and consistent information that helps New Zealand’s investors to make their decisions. Where we see firms trying to achieve this, our first choice is to support them to manage any issues that arise through engagement and feedback, without the need to escalate further. Where we see cynical misuse of ethical labels and descriptions, or no real effort to provide good information for investors, we will take a quite different approach, and we must and will use our enforcement and other regulatory tools where we see serious misconduct.
We are also closely following global trends. As greenwashing and ethical investing become increasingly prominent issues globally, New Zealand cannot afford to lag. Our regulatory approach must align with international standards while reflecting our unique market conditions.
As the definition and standardisation of terms like ‘sustainable’ and ‘ethical’ investments evolve both nationally and internationally, we will assess their impact on New Zealand’s market. Additionally, we will consider any material developments from the Sustainable Finance Taxonomy under development by the Ministry for the Environment, which aims to help investors identify sustainable activities.
There are risks in taking a too prescriptive approach, which could put New Zealand out of step with other comparable jurisdictions or industry practice. That is why it’s important that the FMA continues to improve ethical investing disclosure as ethical investing is a high trust relationship.
So, what are we doing next? We will be updating our 2020 ethical guidance following engagement with the market. This will be a longer-term project, where we will seek views and insights from across the financial sector before drafting any proposed guidance. Ethical claims need to be clear, concise and effective in fund manager’s disclosure documents. We will continue to review ethical investing practices, both proactively and in response to any complaints received.
Conclusion
Maintaining trust in ethical investing requires the same vigilance and collaboration that guided the creation of the FMA and the introduction of the FMC Act. Just as we were established to protect everyday investors from the harms exposed during the Global Financial Crisis, our shared responsibility now is to ensure that today’s financial products—especially those marketed as ethical or sustainable—are transparent and trustworthy.
Our preference is to guide people in understanding their obligations and supporting the market get it right from the outset. By setting clear expectations and helping people grasp what’s required, we can prevent issues before they arise.
By working together, issuers, third-party providers, and regulators can build a market where investors confidently choose products that align with their values. The FMA remains committed to supporting the industry in this journey. We encourage you to engage with us, adopt best practices, and stay informed about emerging regulatory trends. Upholding transparency, standards, and preventing greenwashing are critical to maintaining the trust and integrity of New Zealand’s financial markets.
