ASIC ramps up greenwashing-related regulatory interventions, targeting managed funds and ASX listed entities

Proper processes to verify ESG-related statements are crucial 5 min read

ASIC's latest report, ASIC's recent greenwashing interventions (the Report), outlines its recent surveillance activities and regulatory interventions to tackle misleading marketing and greenwashing. ASIC's focus has been on managed funds and companies raising capital from retail investors, with superannuation funds and the wholesale green bond market set to be next. We consider some of the key lessons from ASIC's reported interventions, and what funds and companies can be doing now to mitigate exposure to such interventions.

Key takeaways 

• ASIC's interventions resulted in funds and companies making corrective disclosures in their prospectuses, product disclosure statements, market announcements and websites, to address overreaching or vague ESG-related statements.
• To mitigate this type of ASIC intervention, legal, compliance and marketing teams should have in place appropriate processes to verify ESG-related statements before they are published or announced (including on websites and social media), to ensure they are factually accurate and there is a reasonable basis for the statements.
• Funds and companies should also consider undertaking ongoing assurance exercises regarding their existing ESG-related statements by testing material statements against actual practice, to understand any potential regulatory exposure or litigation risk, and whether any such statements should be amended or removed.
• While greenwashing is ASIC's current focus, entitles should also be aware of the risk of 'bluewashing', which is the practice of misrepresenting the extent to which a business, product or investment respects human rights. Focus on these types of misrepresentations is gaining traction, particularly as to modern slavery and Indigenous rights.
• For further background on greenwashing, questions organisations should consider when offering or promoting sustainability-related products, and recommendations to mitigate risk in sustainability statements and greenwashing, see our Insight: 13 recommendations to mitigate risk in sustainability statements and greenwashing.

What's in the Report

The Report, released on 10 May 2023, provides examples of ASIC's regulatory interventions actioned between 1 July 2022 and 31 March 2023. They have stemmed from ASIC's expanded and ongoing surveillance of greenwashing in disclosure documents, product disclosure statements, advertisements, websites and other market disclosures.

Managed funds and listed companies were the key focus during the reported period. The examples make reference to four 'themes' of greenwashing, namely:

• net zero statements and targets;
• use of terms such as 'carbon neutral', 'clean' or 'green';
• financial product and managed fund labels; and
• the scope and application of investment exclusions and screens. The intervention examples described in the Report went beyond exclusions and screening for climate matters, to other ESG-related matters, such as the tobacco, alcohol and gambling industries.

The Report notes that in the reported period, ASIC obtained 23 corrective disclosure outcomes, which sought to amend either overreaching or vague ESG-related statements. Infringement notices continue to be a key intervention tool against greenwashing, with 11 infringements issued in the reported period. In addition, one civil penalty proceeding for alleged greenwashing has been commenced by ASIC, which was filed against a superannuation fund in February 2023 for allegedly making misleading statements about the sustainable nature and characteristics of some of its superannuation investment options.

Practical lessons from ASIC's recent interventions

Below are some key lessons that can be gleaned from ASIC's recent interventions, and practical suggestions for what funds and companies can be doing now to mitigate exposure to such interventions:  

• ASIC is reviewing a wide range of material for greenwashing, including prospectuses, product disclosure statements, market announcements, advertisements and websites – entities should be alert to greenwashing and bluewashing risks across all public statements and public-facing documents.
• ESG-related statements, particularly net zero commitments and targets, need to be factually accurate and evidence based, with the feasibility of meeting those statements and targets having been tested, and a credible plan in action to do so.
• Net zero commitments need to be clearly explained and disclosed, including:
  • the remit of the relevant statement;
  • the steps that have been taken to date;
  • how progress or milestones will be measured, and expected timeframes;
  • detail about any offsetting strategy; and
  • any assumptions relied on when setting that target or when measuring progress.
• When using ESG-related terms such as 'low-carbon' and 'responsibly sourced', entities need to provide a clear and detailed explanation as to what such terms mean – avoid using broad, unsubstantiated sustainability-related statements or 'jargon' without providing clarifying information (eg ASIC found the use of the terms 'social diversity' and 'robust sustainability practices' by a company to be too vague).
• The scope and application of investment screening processes and exclusions in practice must be consistent with how these products and investments are advertised to investors. Adequate relevant information should be provided, so that investors can understand any screening exceptions or qualifications (including threshold-based screens). This includes explaining any terms used in the screens or thresholds that may otherwise be vague, ambiguous or have different accepted definitions. Eg if potential investments are 'excluded' from a fund where they generate revenue over a specified percentage from excluded activities (rather than a blanket exclusion), this needs to be clearly disclosed to investors.

See also our Insight: New ASIC guidance on how superannuation and managed funds can avoid 'greenwashing', which includes further key questions to consider when offering or promoting sustainability-related products.

Future focus

Combatting greenwashing is a strategic priority of ASIC in 2023. In the Report, the regulator has indicated that it will be:

• progressing surveillance on the superannuation fund sector and the wholesale green bond market; and
• continuing its surveillance of the managed fund and corporate sectors.

We expect to see ASIC keep leaning on corrective disclosures to mitigate greenwashing concerns, in addition to continuing to investigate entities and take further enforcement action – including civil penalty proceedings – for suspected greenwashing.

To limit potential regulatory exposure and ESG-related litigation risk, we recommend that funds and companies have in place appropriate processes to verify ESG-related statements before they are published, and undertake ongoing assurance exercises regarding existing ESG-related statements.