35 greenwashing enforcement actions in nine months and counting…

6 minute read 17.05.2023 Kate Hilder, Siobhan Doherty, Cecile Walton

That greenwashing is a key enforcement focus for ASIC is made very clear in ASIC's latest report detailing examples of instances in which the regulator has intervened over the last nine months. Ahead of the expected introduction of new internationally aligned disclosure requirements and other policy measures designed to support and reinforce Australia's sustainable finance market, ASIC has reiterated called for firms to sharpen their focus on the issue.

Key takeouts

Greenwashing occurs when an organisation misrepresents (either expressly or impliedly) its sustainability related risks, business credentials, strategies or those of its products or services. Greenwashing distorts information that consumers need in order to make informed decisions.

ASIC report 763 highlights ASIC's focus on greenwashing enforcement and is intended by the regulator to supplement the guidance in INFO 271 through providing examples of when ASIC has intervened.

In its latest report, ASIC underlined that tackling greenwashing remains a key enforcement priority, noting that the 2023 Federal Budget included additional funds to support this work.

ASIC has expanded its greenwashing surveillance to include not only the managed fund and corporate sectors but also the superannuation and wholesale green bond market.

In her address to the RI 2023 Conference, ASIC Deputy Chair Karen Chester underlined that ASIC's current work is only one aspect of the broader range of measures being progressed in Australia, and globally, to tackle the issue. In light of this, Ms Chester called on firms to sharpen their focus including:

reviewing the guidance on how to avoid greenwashing (ASIC INFO 271, and Report 763);
keeping abreast of other policy developments including the expected roll out of mandatory ISSB-aligned disclosure requirements in Australia and the development of the government's climate strategy; and
ensuring their 'governance practices are, and remain, fit for sustainability purpose – as the tide lifts'

35 greenwashing enforcement actions in nine months

The Australian Securities and Investments Commission (ASIC) has released a report – Report 763 ASIC's recent greenwashing interventions (REP 763) – detailing the main issues identified across the 35 greenwashing actions taken by the regulator during the period 1 July 2022 to 31 March 2023.

These actions included:

23 corrective disclosure outcomes
11 infringement notices issued
1 court action

Key problems identified

For clarity, ASIC ASIC defines 'greenwashing' as

'the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical'.

The greenwashing concerns flagged in the report fall into the following four categories.

net zero statements and targets and decarbonisation claims that 'did not appear to have a reasonable basis or were factually incorrect'
use of terms such as ‘carbon neutral’, ‘clean’ or ‘green’ in prospectuses, product disclosure statements and market announcements when 'there appeared to be no reasonable basis for these claims'
fund names not 'true to label' in that, ASIC considered 'the names of the products or funds included sustainability-related terms that were inconsistent with the funds’ investments or the investment process described'
the stated scope or application of an investment screen or exclusion was considered too 'vague' or where the scope of investment screens was more limited than stated or where investment screens were not complied with.

The report includes examples of instance where ASIC took action under each of these broad categories with a view to providing transparency around ASIC's expectations and supporting compliance with existing requirements. As such, the report is intended to supplement the guidance in ASIC's information sheet INFO 271) on how to avoid greenwashing.

A key (and continuing) enforcement priority for ASIC

ASIC has previously identified tackling greenwashing as a top enforcement priority for 2023. The recent Federal Budget included additional funding ($4.3 million for 2023-24) to support the regulator in this work.

In her 10 May 2023 speech to the RI Australia 2023 annual Conference, ASIC Deputy Commissioner Karen Chester summed up why ASIC (and regulators globally) consider the issue to be of such importance as follows:

'Greenwashing distorts the information that a current or prospective investor might need to make informed investment decisions. In doing so it results in capital misallocation. Greenwashing corrodes investor confidence in the market for sustainability-related financial products and corporate strategies….As capital around the world leans into the investment task at hand, trust and transparency are paramount'.

In her address, Ms Chester made clear that ASIC had expanded its greenwashing surveillance to include not only the managed fund and corporate sectors but also the superannuation and wholesale green bond market.

Beyond TCFD-aligned disclosure: New disclosure obligations on the way

Ms Chester emphasised that enforcement of compliance with existing disclosure requirements is only one aspect of the measures necessary, and being progressed, to tackle greenwashing.

An important development in the Australian context, Ms Chester said, is the expected roll out of new internationally aligned, mandatory disclosure standards which importantly, will go further than the TCFD framework in a number of respects. Ms Chester underlined ASIC's support for this development stating:

'ASIC supports both the shift to mandatory disclosure in Australia and the work of the ISSB in developing the global baseline to do so. For all of us, a global baseline is a must-have antidote to greenwashing. And a must-have if Australia is to remain a destination for global capital'.

For context, consultation (summarised) on how and when a new mandatory sustainability reporting regime will be introduced in Australia closed on 17 February 2023.

The new regime is proposed to be aligned with the requirements in draft global standards being developed by the International Sustainability Standards Board (ISSB) – [Draft] IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (General Requirements Exposure Draft) and [Draft] IFRS S2 Climate-related Disclosures – which are expected to be launched in final form by June 2023.

Treasury's consultation paper suggests that mandatory climate reporting is likely to commence in Australia from the 2024/2025 financial year (though it is not yet clear which entities will be required to report within this timeframe).

[Note: Ahead of the introduction of new mandatory ISSB-aligned sustainability reporting requirements in Australia, the AICD, in conjunction with Deloitte and MinterEllison, have produced a new guide outlining what is known about the forthcoming requirements, the questions yet to be determined by government, and the steps boards can take now in preparation.]

Other key policy developments

Ms Chester also pointed to the government's planned consultation in the second half of 2023, on a proposed 'comprehensive sustainable finance strategy' which is expected to include the development of new taxonomies for sustainable investment, and other initiatives to reduce greenwashing and strengthen ESG labelling, as another important step towards putting in place the necessary 'policy scaffolding' to support Australia's sustainable finance market.

Ms Chester commented:

'Taken collectively, these policy initiatives will provide the "bright lines" to afford greater comparability in climate-related financial disclosure and, over time, sustainability issues more generally.
Taken collectively they will also, over time, prove to be a broad antidote to greenwashing. The "nowhere to hide" transparency of quality and comparable climate-related financial disclosures with the supporting policy installed bright lines.'

ASIC encourages firms to sharpen their focus 'as the tide lifts'

In light of the direction of these developments, Ms Chester encouraged firms to:

review the guidance in Information Sheet 271 to support compliance with existing obligations
'consider' the issues identified in ASIC Report 763 and in particular 'the kinds of statements and disclosures we [ASIC] have been taking issue with'
'keep on top of emerging policy developments' (including the expected introduction of ISSB-aligned disclosure requirements in Australia and the policy developments flagged above)
'ensure your governance practices are, and remain, fit for sustainability purpose – as the tide lifts'.

[Sources: Report 763 ASIC's recent greenwashing interventions (REP 763); ASIC Deputy Chair speech to the RI Australia 2023 annual conference, ASIC and Greenwashing Antidotes, 10/05/2023]