Climate change remains one of the most significant risks facing the global community. In response to investor demand, sustainability-labelled investments have more than doubled between 2019–21 in our region alone, according to Morningstar Australia. Globally, Bloomberg Intelligence estimates environmental, social and governance (ESG) assets are projected to exceed US$53 trillion by 2025 and represent more than a third of total assets under management. Transparency and trust are paramount to ensuring investor confidence as the market for these products continues to develop and grow.
The Australian Securities and Investments Commission recently issued Information Sheet 271 How to avoid greenwashing when offering or promoting sustainability-related products (INFO 271) to help superannuation and investment funds comply with existing regulatory obligations to avoid greenwashing. This follows our review of a sample of superannuation and investment products which identified some areas for improvement.
INFO 271 is designed to ensure promotion of sustainability-related products does not involve statements or conduct that is misleading or deceptive, including disclosures in product disclosure statements. While it focuses on superannuation and investment funds that issue sustainability-related products, INFO 271 also contains several important takeaways for directors more broadly.
Clear disclosure
We expect issuers to — and hope you will too — review practices against the nine questions set out in INFO 271 to ensure investors have adequate information to make informed investment decisions. The questions are designed to facilitate truth in promotion and clarity in communication, and give examples of practices that may fall short of meeting current regulatory obligations. While all the questions listed in INFO 271 may not be applicable to your company, we encourage you to consider the following:
- Have you used vague terminology?
- Are your headline claims potentially misleading?
- Is there a reasonable basis for a stated sustainability target?
- Is it easy for investors to locate and access relevant information?
Importantly, headline statements about a company’s green credentials should not be misleading.
Action plans
Sustainability targets — such as net-zero commitments — require clear, time-based action plans to avoid breaching the misleading statement prohibitions. If your company has set a sustainability target, you should clearly explain:
- What your target is
- How and when you expect to meet your target
- How you will measure your progress milestones
- Any assumptions you have relied on when setting that target or when measuring progress.
International developments
International developments in sustainability investment and financing, especially in relation to disclosure, are moving at pace. ASIC is actively engaged with these developments and supports the work of the recently established International Sustainability Standards Board (ISSB).
The ISSB is currently consulting on baseline global climate and sustainability-related disclosure standards to support the information needs of investors in sustainability-related products. The establishment of a global baseline is needed to avoid prohibitively costly disclosure fragmentation across jurisdictions. Several jurisdictions — including the United States, United Kingdom and New Zealand — have already taken steps towards mandating climate disclosure.
To ensure your company is well placed to transition to any future ISSB standards applied in Australia, we recommend:
- Adopting the recommendations of the G20 Financial Stability Board’s Taskforce on Climate-related Financial Disclosures (TCFD) as the primary framework for voluntary climate change-related disclosures
- Keeping up to date with international standards for climate disclosure.
For more information about adopting TCFD recommendations, see ASIC’s 21-349MR.
What’s next?
Going forward, greenwashing will remain a priority area of our regulatory focus at ASIC. We are continuing to monitor the market and will be looking for misleading claims about sustainability-related investments.
If you see or suspect greenwashing, alert ASIC.
This article was first published in AICD's Company Director magazine in August 2022.
