On 27 October 2022, the Australian Securities and Investments Commission ('ASIC') announced it had taken its first action against an ASX-listed energy company for corporate greenwashing, issuing four infringement notices resulting in over $50,000 of penalties being issued because of 'false or misleading sustainability-related statements' made to the ASX in October 2021.
In the announcement, ASIC put companies on notice that the market is being 'actively monitored for potential greenwashing', warning of enforcement action and stating they were currently investigating several listed entities, superannuation funds, and managed funds in relation to their green claims and credentials.
In basic terms - if you're talking the talk, make sure you're walking the walk. What is greenwashing?
Corporate greenwashing involves using marketing and public relations activities to deceive the public and misrepresent products as environmentally friendly, sustainable, or ethical.
In the context of investments, greenwashing distorts information investors may use to make investment decisions by including false or misleading claims surrounding emissions, sustainability, infrastructure, renewable energy, carbon neutrality, etc.
The 2022 From Values to Riches study conducted by the Responsible Investment Association Australasia revealed 83% of Australians expect their superannuation and bank account funds to be invested responsibly and ethically, and 74% would consider moving to another provider if they found out their current fund was investing in companies engaged in activities inconsistent with their values.
The heightened demand for green products has caused the prevalence of greenwashing to grow in recent years, raising the risk of investors being misled and reducing investor confidence in sustainability related claims and products. These effects are compounded by a lack of a generally accepted standardised format for sustainability reporting.
How is greenwashing regulated?
The Corporations Act 2001 and the Australian Securities and Investment Commission Act 2001 both provide for the general prohibition of statements and dissemination of information that is false or misleading, as well as conduct that is dishonest, misleading, or deceptive, in relation to a financial product or service. These prohibitions extend to greenwashing practices. ASIC has indicated representations made about future matters to be a key risk area regarding misleading statements. Such representations may be deemed misleading if they are not supported by reasonable grounds for making them. The Corporations Act 2001 also requires listed companies to describe any material business risks affecting them in the Operating and Financial Review section of their director's reports. ASIC has corresponded with several listed companies, requiring them to issue addendums to their annual reports, specifically requesting additional clarification of these risks in line with ASIC Regulatory Guide 247. There are also additional disclosure obligations surrounding environmental, social, and ethical considerations and labour standards that arise when preparing Product Disclosure Statements for sustainability related products. ASIC also participates in the Sustainable Finance Task Force established by the International Organisation of Securities Commissions.How can entities offering sustainability-related products avoid greenwashing?
ASIC has outlined several questions in an Information Sheet for boards to consider when preparing marketing materials, disclosures, or other communications around sustainability related products. While some questions are primarily aimed at managed funds, many of them should also be considered by superannuation funds and ASX-listed entities offering sustainability related products. Some of these questions include:- Is your product true to label?
- Have you used vague terminology?
- Are your headline claims potentially misleading?
- Have you explained how you use metrics related to sustainability?
- Do you have any influence over the benchmark index for your sustainability-related product? If you do, is your level of influence accurately described?
- Do you have reasonable grounds for a stated sustainability target? Have you explained how this target will be measured and achieved?
- Is it easy for investors to locate and access relevant information?
