The Greenwashing Tide

April 2023
Disclosure & Marketing
Funds Management
Regulated Disclosure Documents
Regulatory Surveillance & Action
Superannuation Trustees


This article was written by Bailey Breen (law clerk) and Angela Longo (principal)

So far in 2023 there is one word that has been hot on the lips of financial service regulators, ASIC in particular - Greenwashing.

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

It is an increasingly common phenomenon as trustees seek to capitalise on growing consumer interest in investment options focused on environmental, social and corporate governance (ESG)considerations.

Yet the practice can be misleading and harmful to member confidence and the broader superannuation environment. Distorting the information available to current and prospective members makes it difficult for funds to compete fairly – ultimately disadvantaging complying trustees and members themselves.

In February, ASIC identified ‘greenwashing’ and a focus on sustainability-related disclosures as an enforcement priority for the year. This came off the back of a swathe of regulatory action in the second half of 2022.

For several years, ASIC has reminded trustees to ensure that products are ‘true to label’ – that the product name aligns accurately with the underlying assets. The recent emphasis on ‘greenwashing’ appears to be ASIC merely refining the scope of a pre-existing regulatory focus on the accuracy of investment product labelling practices.

Recent ASIC action – concerns over ‘investment screens’ and inaccurate disclosures

ASIC has demonstrated its willingness to issue infringement notices across the financial services sector.

“As consumers increasingly look to more sustainable and ethical investing, including via their superannuation, ASIC wants to make sure funds have the evidence to back their claims and are not promising exclusions that they can’t guarantee.” – ASIC Deputy Chair Sarah Court

There have been several instances of ASIC action focused on inaccurate or exaggerated statements in relation to financial products and investment screens. What they reveal for trustees is the heightened need for accuracy in terms of the nature and extent of representations made to consumers,  but also that claims about sustainability and ESG-related considerations must be able to be supported by tangible evidence or metrics.

In terms of legislation, it seems ASIC is relying on either section 12DB or 12DF of the ASIC Act as a basis for enforcement action.

Section 12DB(1)(a) ASIC Act:

a person must not, in trade or commerce, in connection with the supply or possible supply of financial services, or in connection with the promotion by any means of the supply or use of financial services, make a false or misleading representation that services are of a particular standard, quality, value or grade.

Section 12DF(1) ASIC Act:

a person not,in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the characteristics, the suitability for their purpose of the quantity of any financial services.

2023 sees first court proceedings against ‘greenwashing’

As we moved into the new calendar, in February ASIC commenced the first court proceedings against a superannuation trustee for greenwashing.

Mercer Superannuation (Australia) Limited are alleged to have made misleading statements about the sustainable nature and characteristics of some of the investment options available through its fund.

Marketing statements available on the fund website promoted certain investment options within the fund as being suitable for members who ‘are deeply committed to sustainability’ because of certain investment screens. These included: 

  • representations on its website that funds invested in certain ‘sustainable’ investment options were not invested in companies involved in, or deriving profit from, the production or sale of alcohol, gambling or the extraction or sale of carbon intensive fossil fuels.
  • representations on its website that funds invested in ‘sustainable’ investment options would not, in future, be invested in companies involved in, or deriving profit from, the production or sale of alcohol, gambling or the extraction or sale of carbon intensive fossil fuels.

Allegedly, the trustee breached both s12DB(1)(a) and s 12DF(1) of the ASIC Act in promoting these investment screens, as investments were made into companies engaged in the activities explicitly excluded by the statements on the website. This was also not a negligible number, with over 30 instances.

Guidelines to help compliance

The risks associated with greenwashing are coupled with the lack of uniformity and clarity regarding labelling in this context. However, keeping in mind ASIC’s longstanding focus of products being ‘true to label’, there are several steps trustees can take.

Trustees should already be familiar with ASIC’s expectations outlined in Information Sheet 271 How to avoid greenwashing when offering or promoting sustainability-related products. Integrating this approach will assist trustees to accurately prepare disclosures and communication so as to avoid misleading and deceptive greenwashing practices.

These expectations are underpinned by long-standing (but often forgotten) principles in the binding Regulatory Guide 65: Section1013DA disclosure guidelines.

ASIC has also previously encouraged adoption of the recommendations for sustainability-related disclosure set out in the framework provided by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD). In addition to ASIC’s INFO 271, the below principles act as a useful starting point to assist trustees in complying with ASIC’s expectations.  They reflect the importance of truthfulness in disclosure more generally.

TCFD framework for sustainability-related disclosures

 Accuracy and Honesty – the path forward for trustees

The lessons for the wider superannuation industry from recent ASIC action is clear. Accuracy in the representations made to consumers is paramount. This applies to all representations about a product, but particularly statements that investments in certain industries will be excluded via investment screens, given ASIC’s current regulatory focus.

At the end of the day, trustees must focus on ensuring that any communications are underpinned by truthfulness (in the case of investment methodologies this is achieved using clearly defined labels and relevant terminology) and clarity (in the case of investment methodologies this involves explaining the way sustainability-related considerations are factored into investment strategies).

Trustees should be mindful of greenwashing as not just a short-term issue, given the increasing demand for environmentally conscious, sustainable, and ethical investment options, particularly from members of a younger demographic. It’s also not an isolated issue.  It is merely an example of the importance of truthfulness in disclosures. Truthfulness in the disclosure of fees and costs, investment performance, insurance terms and other product features are just as important.

Truthfulness necessarily involves interrogating the information or data (including third party data where relevant) on which representations are based

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