ASIC has issued guidelines for sustainability claims by suppliers of financial products as it turns up the heat on greenwashing.
The information sheet, which outlines how ASIC will police greenwashing, is aimed at entities responsible for managed funds, corporate directors of corporate collective investment vehicles, and trustees of registrable superannuation entities.
ASIC deputy chair Karen Chester said that the information sheet would help them comply with regulations.
“Labels or headline statements about a product’s green credentials should not be misleading,” said Ms Chester.
“Being true to label is not a nice-to-have, it’s a regulatory must-have.”
ASIC commissioner Sean Hughes said that false claims about the sustainability of products would be closely examined.
“This is and will remain a priority area of focus,” he said.
“ASIC is continuing to monitor the market and will be looking for misleading claims about ESG and sustainability.
“This is clearly an evolving area, which is attracting attention from investors, funds and policy-makers alike.”
ASIC defines greenwashing as the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical.
After undertaking a review into the greenwashing of superannuation and investment products, the commission found three key areas for improvement.
These were the need for:
- Better labelling.
- Definitions of sustainability terminology.
- Clearer explanations of how sustainability considerations are factored into an investment strategy.
The information sheet released by ASIC outlined several questions for issuers to consider when preparing communications and disclosures about sustainability-related products.
A number of them revolved around issuers being honest and clear when communicating the product to avoid greenwashing.
ASIC said that using vague terminology and having misleading claims were two ways issuers would fall foul.
An example of this was labelling a product as a “no gambling fund”, but allowing it to invest in companies that earn less than 30 per cent of their total revenue from gambling activities.
Another potential slip involved failing to explain how sustainability-related factors were incorporated into investment decisions and stewardship activities.
ASIC said that issuers should provide investors information about sustainability-related considerations that they take into account and how these considerations are incorporated into investment decisions and stewardship activities.
It also said that issuers should be able to explain how they use metrics related to sustainability.
If issuers rely on sustainability-related metrics such as ESG scores, they should disclose the sources of them, the extent to which the metrics are used when evaluating investments and the risks or limitations of relying on the metrics.
