An update from the Australian Securities and Investments Commission (ASIC) provides some interesting examples of the kind of misleading and even factually incorrect claims being made by funds and companies to claim green credentials. Regulators and fund managers worldwide are finding that checking for greenwashing is taking up more and more resource, and becoming more and more challenging.

The report from ASIC details greenwashing surveillance carried out between July 1, 2022 and March 31, 2023. During this period, ASIC made 35 interventions, one of which led to civil penalty proceedings against Mercer Superannuation (Australia) Limited for allegedly making misleading statements.

Of the other interventions, 23 were corrective disclosure notices and 11 were infringement notices.

Ongoing surveillance

“All 35 of our interventions are aimed squarely at promoting fair and transparent markets so that retail investors and financial consumers are well informed and not misled on the ‘green credentials’ of investments and listed companies,” said Karen Chester ASIC Deputy Chair. “We have ongoing surveillances and several investigations underway and anticipate further regulatory action.”

The report identifies a number of themes:

• net zero statements and targets;
• use of terms such as ‘carbon neutral’, ‘clean’ or ‘green’;
• fund labels;
• scope and application of investment exclusions and screens.

Some net zero statements and claims of decarbonisation, in the view of ASIC “did not appear to have a reasonable basis, or were factually incorrect”. Examples include an oil and gas company being unable to provide additional information about the feasibility of achieving stated net zero targets by 2050, and a mining company that admitted claims about the benefits of using a particular technology did not indicate clearly enough that this was only at the exploration stage.

There were numerous instances “where entities described their operations, projects or products as ‘carbon neutral’, ‘clean’ or ‘green’ when there appeared to be no reasonable basis for these claims”. Again, several examples revealed it was not made sufficiently clear that benefits of deploying particular technologies and techniques were only at the exploratory stage, or were aspirations.

Vague terminology

While the use of some terminology was vague, there is also recognition that definitions are also not as clear as they should be in order to help those trying to comply with them.

A number of examples of financial products not being true to their label were identified. By this, ASIC means “the names of the products or funds included sustainability-related terms that were inconsistent with the funds’ investments or the investment process described”. Remedial actions usually involved changing fund names.

Mercer Superannuation (Australia) was the first company taken to court by ASIC over greenwashing, with the action announced in February. Its Sustainable Plus fund was positioned as being suitable for members who were “deeply committed to sustainability”. But it turned out the fund had investments in:

• 15 companies involved in extracting or selling fossil fuels;
• 15 companies involved in alcohol production;
• 19 companies involved in gambling.

Investment screens

Finally, ASIC looked at the use of investment screens, which are used to exclude certain investments on the basis of named characteristics. The regulator found examples where “we considered the scope or application of an investment screen or exclusion to be vague or overstated”.

These included one company that claimed to avoid investment in companies that produced, manufactured or were involved in the sale of significant quantities of tobacco. What was not stated, however, was that the exclusion did not apply to companies involved in the sale of tobacco products. A subtle difference that an investor might overlook when examining investment options.

The full report can be found on the ASIC website, along with a copy of the regulator’s How to avoid greenwashing information sheet.