Dilan Ashton

Over the last 12 months we’ve seen ASIC clamp down on greenwashing, particularly amongst fund managers and their product offerings which has increased scrutiny on ‘true to label’ advertising and marketing, writes Dilan Ashton, General Manager for Responsible Investing at Equity Trustees.

A wave of green has rolled across the local and global investment markets, with Bloomberg estimating that global ESG assets will represent nearly a third of all assets under management by 2025. Regulators and financial advisers alike are being kept on their toes ensuring that sustainable financial products being sold to consumers are well understood and more importantly do what they say they are going to do.

Greenwashing is the practice of misrepresenting a financial product or an investment strategy to be either environmentally friendly, sustainable, or ethical – put simply, when someone puts a lot of effort into advertising to make a product greener than what it actually is. It’s an area where advisers need to be continually vigilant when it comes to personal advice on product recommendations.

With ASIC’s increased focus on greenwashing, we have seen funds increasingly choosing not to publicise or downplaying their sustainability goals to avoid allegations of greenwashing and unwanted scrutiny. This practice is referred to as ‘green hushing’ and has emerged as a new trend, even in cases where goals are well intentioned, reasonable, and backed by process.

What to look for

ASIC’s Information Sheet 271 provides guidance around what greenwashing is, the current regulatory environment around sustainable products, and nine questions to consider when offering or promoting these products. The questions are drafted based on ASICs recent reviews on greenwashing and designed to facilitate truth in promotion and clarity in communication.

Clarity is imperative when creating marketing and communications strategies around a goal statement. We often find the most common way managers get into hot water is simply by making gratuitous statements.

Consider headings or graphics to see whether these might detract from the more qualified statements that appear in the material itself. Some marketing material is very well crafted in terms of appropriate qualifications and information, but the major headings can be misleading, and very different to the much smaller ‘fine print.’

Similarly, regarding sustainability related metrics, managers need to be careful around how sufficiently they are explained. For example,  product issuers that state they are committed to reaching net zero carbon emissions across their investment portfolios need to ensure they provide investors with the information around what this means and how they are going to achieve those targets.

One way to gain assurance that a fund is delivering on its responsible investment (RI) claims is to seek out offerings that have been independently verified by a third party.  The Responsible Investment Association Australasia (RIAA), a leading advocate for RI in Australia and New Zealand have a certification program that distinguishes quality, true to label RI products and services which is a good starting point for advisers.

Read between the lines

We have seen a clear shift in the ESG environment over the last five years, and it is no surprise that some product issuers across the financial services industry have tried to capitalise on the thematic. ASIC’s recent clamp down has once again reinforced the need for clear communication and marketing, and to create a fair environment for investors.

With the Federal Government announcing a further $4.2 million injection towards ASIC for sustainable finance misconduct, it is important now more than ever to look for clear messages and conduct all ESG representations with detailed explanations and substantiated evidence.

By Dilan Ashton, General Manager for Responsible Investing

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