The report will be of interest to all financial service and product providers who make statements regarding environmental, social or governance (ESG) matters. To date, ASIC has been willing to take enforcement action in relation to greenwashing issues and the areas of interest it has identified provide a helpful indication of where New Zealand’s regulators could go, should they follow suit.
The report also acknowledges the impact that Australia’s sustainability finance reforms are anticipated to have in providing further standards against which to assess sustainability-related disclosures. That, in turn, is a helpful reminder to New Zealand audiences that sustainable finance reforms are also on the horizon here.
ASIC’s key areas of concern in respect of greenwashing misconduct
The report lists four areas of concern in respect of greenwashing misconduct by corporations, managed funds, superannuation funds and the wholesale green bond market.
- Underlying investments that are inconsistent with disclosed environmental, social, and governance (ESG) investment screens and investment policies. ASIC has brought civil penalty proceedings against Mercer Superannuation (Australia) Limited, Vanguard Investments Australia and Active Super. The Federal Court has now ordered Mercer to pay a penalty of AU$11.3 million. Vanguard is awaiting judgment. Active Super’s penalty hearing is set down for 17 December 2024.
- Sustainability-related claims made without reasonable grounds. Examples identified include emissions profiles and environmental impacts which did not appear to be based on reasonable grounds.
- Insufficient disclosure on the scope of ESG investment screens and investment methodology, where the scope of investments screens or investment methodologies was vague or ambiguous. ASIC identified the issue across a range of documents including Product Disclosure Statements (PDS), Additional Information Booklet (AIB), websites and investment policy documents. In some cases, ASIC required amended PDSs and incorporated AIB’s to disclose how ESG scoring metrics were integrated as part of fund selection and in investment screening criteria, and updated marketing materials (including social media accounts) to clarify a fund’s exposure (albeit indirect) to fossil fuels.
- Sustainability-related claims made without sufficient detail and often accompanied by vague terminology and undefined terms. ASIC identified this issue across a range of documents including prospectuses, scheme booklets, PDSs, websites and other promotional materials. In some cases, ASIC required the provision of replacement or supplementary prospectuses to explain specific initiatives or provide further information and context to support the original sustainability-related claims, and use of defined terms to ensure clarity, consistency and detail of sustainability-related claims and investment processes.
ASIC has taken a range of enforcement measures in response to these issues, including corrective disclosure, infringement notices and civil penalty proceedings:
ASIC’s key recommendations in respect of sustainability-related disclosure and governance practices
The report also lists ASIC’s key recommendations following surveillance of listed companies, managed funds and superannuation funds. Those potentially relevant to a New Zealand audience include:
- When disclosing climate-related metrics and targets voluntarily, entities should consider the relevant disclosure requirements set out in applicable reporting standards (e.g. the Australian Sustainability Reporting Standards).
- Verify investments for consistency against disclosed investment strategies.
- Provide adequate explanations of investment exclusions or screening criteria.
- Avoid ambiguity when disclosing potential use of proceeds to be raised under a green bond and ensure disclosure aligns with any current intended use of proceeds.
ASIC’s recommendations reflect principles that the Financial Markets Authority has already articulated in more general guidance it has issued in relation to the advertising financial products (see our earlier update here).
Looking ahead – greenwashing and sustainable finance reforms
New Zealand’s regulators have not been as active as their Australian counterparts in relation to greenwashing enforcement. Given the similarity in the Australian and New Zealand regulatory regimes, ASIC’s report may be of interest to financial service and product providers in New Zealand.
ASIC’s areas of focus may have relevance beyond the regulators. Private claims remain a potential option for pursuing greenwashing concerns, noting that the civil proceeding alleging greenwashing breaches against Z Energy continues to move towards a possible trial.1
The report also acknowledges the anticipated impact of Australia’s sustainable finance reforms including the Australia’s Sustainable Finance Roadmap and the development of an Australian sustainable finance taxonomy. ASIC has emphasised that these reforms are intended to increase the transparency, comparability and consistency of sustainability-related disclosures, and that ASIC will have an enhanced role, in shaping and ensuring compliance with those reforms.
New Zealand is also on its way to preparing its own sustainable finance reforms. Earlier this year, the New Zealand Government announced the establishment of a specialised Independent Technical Advisory Group (ITAG) to provide independent (non-binding) advice on New Zealand’s sustainable finance taxonomy.2 The ITAG was due to deliver its recommendations to the Minister by June 2024. It will be interesting to see if the recommendations include any to address greenwashing misconduct, as in Australia’s case, and the role of New Zealand’s regulators in respect, and as a result, of those reforms.
If you have any questions about the matters raised in this article, please get in touch with the contacts listed or your usual Bell Gully adviser.
[1] Consumer NZ Incorporated v Z Energy Limited [2024] NZHC 2018 (Judgment of Associate Judge Brittain dated 23 July 2024).[2] https://www.beehive.govt.nz/release/unlocking-sustainable-low-emissions-future.