Dugald Higgins

With global conflict driving investor interest in defence sectors, Dugald Higgins, head of responsible investment at Zenith Investment Partners, says excluding defence from portfolios can raise difficult questions for investors.

The current environment presents one of the clearest examples yet of how responsible investing is moving beyond screening frameworks and into a more complex and politically charged space. This is particularly pertinent as the Federal Government has endorsed recommendations that the Department of Defence establish a framework to enable investment providers to identify suitable finance options for future defence requirements. In April 2026, the Government also announced a $53 billion increase in defence spending over the next decade.

This follows a global trend where geopolitical tensions and government rearmament programs are driving inflows into defence exposures.

Higgins says responsible investment represents a broad spectrum of different investment approaches and isn’t binary. Depending on how fund managers design their strategies, different elements can be utilised within a broader ‘responsible’ framework.

“Responsible investment is a priority for many investors, and for years armaments have often been screened out as part of that ethical position,” Higgins says.

“However, being ‘responsible’ doesn’t necessarily mean being ‘ethical’, nor is being ethical the same as incorporating ESG considerations into an investment process.”

Investors may hold indirect exposure to the defence sector through logistics businesses, manufacturers, and technology or communications companies whose products and services are used in military settings or conflict zones. Exposure can also come through sovereign debt, including government bonds issued by countries involved in arms exports.

“The line is much harder to draw than many investors realise,” Higgins says.

“Like it or not, even the best-intentioned investors probably have some exposure to the defence sector given its broad nature of supply chains and activities. At the very least, investors can be indirectly exposed through government bonds from countries involved in arms exports such as the US, the world’s largest arms exporter.”

Global issuance of defence ETFs has more than doubled over the past year, while assets under management have increased five times to A$109 billion. Despite this, over 90 per cent of those assets are issued by managers that are signatories to the UN-backed Principles for Responsible Investment, highlighting an increasingly visible contradiction within the market.

Higgins says one of the biggest challenges is defining what defence exposure actually looks like in modern portfolios, with the debate moving from the margins to the mainstream.

“We are seeing significant growth in defence-related investment vehicles, including from managers that align themselves with responsible investment frameworks,” Higgins says.

“That naturally creates confusion for investors and raises a more fundamental question around whether defence and ESG can coexist. We believe ESG is foundational and would argue its importance when assessing defence companies which pose high levels of regulatory, financial, legal and reputational risks. But the morality of these investments is a different question.”

Defence companies can face a wide range of material ESG issues, including human rights violations, corruption, political instability, environmental and health impacts, land contamination and high carbon emissions.

Higgins says investors should be wary of treating the sector as either automatically acceptable or automatically excluded without deeper analysis.

“Investors are rightly reassessing the role of defence thematics in portfolios, particularly as the geopolitical landscape changes”, Higgins says.

The attractions are undeniable, given that the average one-year return for defence themed ETFs on the ASX was 32.4 per cent for the year to 31 March 2026, versus 11.6 per cent for the ASX 300 Index.

“But capital moving into this sector needs to be assessed through a genuine ESG lens. Labels alone are not enough. Investors need clearer definitions, greater transparency and a more rigorous understanding of the risks involved.”

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Dugald Higgins

Once exclusive to large institutions, inflows to private markets funds have been strong as investors flock to access well-performing asset classes such as private equity, credit, infrastructure and property. But while these structures provide exposure to those markets, Dugald Higgins, head of responsible investment and real assets at Zenith Investment Partners, says investors also need to be aware of the liquidity constraints of the asset class.

“The industry has experienced a period of real growth, which is typical of the later stages of a market cycle. But now we’re reaching the point where investor expectations around access to capital will meet the reality that many private market assets simply can’t be sold quickly,” Higgins says.

“Private assets are less traded, less transparent, and often require active, hands-on management to realise value. Natural liquidity stems from the underlying assets, not the fund structure.

“This shouldn’t be a disincentive to pursue attractive opportunities, but it should be done in a way that doesn’t make your portfolio vulnerable to shocks.

“Private market funds often look smoother than listed markets because assets aren’t priced daily. But that doesn’t mean the underlying value isn’t changing. When valuations are revised, this can force a market adjustment – and fast.

“Illiquidity shouldn’t come as a surprise to investors. But they often seem to forget its implications when navigating market turbulence and portfolio rebalancing. Liquidity gives asset allocators free reign to adjust to market conditions. Private markets are by nature unwieldy. Failure to critically assess these implications usually leads to disorderly behaviour when the market turns, as we are starting to see in some areas, particularly offshore. The winners will be not just those who’ve planned to navigate through these periods, but can take advantage of pockets of market dislocation.”

Andrew Yap, head of portfolio solutions at Zenith, says despite these risks, private markets remain an important component of diversified portfolios, particularly in sectors such as infrastructure and real estate.

Improved fund structures, greater platform capability, and growing adviser sophistication have steadily lowered the barriers to entry. What was once operationally complex or structurally inaccessible in private markets, is increasingly being delivered in investable formats suitable for diversified portfolios.

“For investors, allocations to private markets are best viewed as complementary exposures designed to sit alongside daily liquid portfolios, not replace them.

“The benefits of private markets don’t come without trade-offs – specifically, liquidity. Unlike daily-liquid portfolios, private market strategies typically offer periodic redemption windows, structured to align investor liquidity with the underlying assets. Illiquid assets require patient capital, and portfolios are more resilient when redemption terms reflect that reality.

Yap emphasised the critical role of deep investment research and experienced portfolio managers in incorporating private markets into client portfolios.

“You can’t assess liquidity risk, unintended portfolio biases or volatility exposure without sophisticated systems – you need to drill into the underlying holdings and understand how a portfolio would behave under stress,” he says.

Yap says investors considering private markets should go in with eyes wide open.

“Over the long term, private market funds have delivered solid returns. But investors should go in understanding that their money may be tied up for longer than they initially expect, and those funds may not always be available when they want it.”

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Dugald Higgins

Responsible investing is moving beyond what has been a challenging time as the sector adopts a more pragmatic position, according to Dugald Higgins, head of responsible investment & real assets at Zenith Investment Partners.

Mr Higgins says the sector has faced a difficult period but is now showing signs of a recovery.

“After a period of what I’d describe as a spiritual recession, we are seeing responsible investment start to turn around,” Mr Higgins says.

“Returns are coming back into line with traditional funds across many asset classes. It reinforces that integrating ESG factors is about solid investment analysis and risk management, not just ideology.”

Mr Higgins says ESG has experienced a cycle of hype, political pushback, macroeconomic pressures and higher interest rates, which all impacted the sector heavily.

“We initially saw strong commitments and sometimes aspirational targets from governments and regulators, but as the conversation matures, what we are seeing now is the broader landscape evolving,” Mr Higgins says.

“In Australia, we are in a holding pattern of sorts, awaiting final rules such as the government’s sustainability fund labelling scheme and the ongoing implementation of climate reporting standards.

“But broadly, this is a sign of a market growing up, not winding down.”

Mr Higgins says despite global political noise about rolling back reporting requirements, the economic case for sustainability is clear.

“More than 70 per cent of Australia’s export partners are in jurisdictions working to implement sustainability reporting standards,” Mr Higgins says.

“Companies have invested heavily in building this capability, and investor demand for quality data on material risks isn’t going anywhere.”

Looking ahead, Mr Higgins says the future of responsible investing will be defined by resilience.

“The managers who will lead the next phase will be those who can demonstrate how their ESG expertise provides a tangible investment edge,” Mr Higgins says.

“This could be through avoiding risk, capitalising on transition opportunities, or engaging with companies to drive better returns.

“The spiritual recession was a period of correction and reflection. Coming out of it, responsible investment is stronger and more-performance oriented.”

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Dugald Higgins

Investors are increasingly exploring private markets as traditional portfolios battle geopolitical and macroeconomic risks, according to Dugald Higgins, head of responsible investment and real assets at Zenith.

In a recent report, Mr Higgins says private equity, credit, real estate and infrastructure are now seen by regulators as structurally significant and vital for the future of capital markets.

“The growth of private-market strategies is accelerating rapidly. Significant capital is flowing in, and the strategic role these assets play in portfolio construction cannot be ignored,” Mr Higgins says.

“As public market volatility grows, private markets can provide the diversification and growth investors are seeking, but only for investors with the right risk profile.”

Once exclusive to large institutions, Mr Higgins says private markets are now more accessible via open-ended ‘evergreen’ funds. However, with significant growth resulting in over 450 funds in the Australian market, questions about liquidity should be at the forefront.

“Private assets are private for a reason – housing them in an open-ended fund does not create additional liquidity in the assets themselves. Natural liquidity stems from the underlying assets, not the fund structure.

“While the liquidity frameworks in open-ended funds are usually significantly more sophisticated today than in the past, liquidity crunches are not new. Fund freezes have been common in these strategies over the past 25 years.”

Mr Higgins says manager selection and operational execution are essential in unlocking the strategic value of private markets.

“Private asset investing requires expert portfolio construction, liquidity management tools, stress testing, and vigorous valuation frameworks,” Mr Higgins says.

“When applied thoughtfully, private markets offer diversification and the potential for strong long-term investment outcomes. But investors must seriously consider the liquidity constraints, manager skill and underlying governance of each opportunity.

“Investors should also consider how illiquidity impacts asset management, not just portfolio management. This is critical in real estate and infrastructure where operational assets need ongoing capital expenditure.”

Higgins says that while private markets can be compelling for those seeking to access assets which have many attractive aspects in a portfolio context, illiquidity is a defining feature and key driver of their characteristics.

“The full potential of private assets is often only realised within strategies designed for liquidity limits, so broader portfolio construction decisions are critical for optimal outcomes,” he said.

“As private markets products proliferate, transparency, governance and investor education are critical to avoid a repeat of the issues the sector has faced in the past.”

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Dugald Higgins

The retreat from ESG commitments could have long-term consequences for both corporate reputations and financial risk management as investors increasingly scrutinise companies for their sustainability practices, according to Dugald Higgins, head of responsible investment & real assets at Zenith. 

He says global giants such as Microsoft, Unilever, BP, and Walmart have recently dialled back their ESG commitments, with many withdrawing from voluntary climate initiatives like the Net Zero Asset Managers initiative (now currently suspended) and the Net Zero Banking Alliance, and others . Despite this, more than two-thirds of asset owners globally state that ESG factors have become more material to investment decision-making.

“This trend is occurring against a backdrop of regulatory upheaval, as companies are caught in a volatile ESG policy landscape with shifting mandates across key global markets,” Mr Higgins says.

“In the United States, the Securities and Exchange Commission (SEC) recently dropped its defence of mandatory climate disclosure rules, following an initial push to remove them under the Trump administration. Meanwhile, in the European Union, the newly released Omnibus package has significantly reduced the scope of ESG reporting requirements.

“In Australia, climate reporting has taken a step forward with the Australian Securities and Investments Commission (ASIC) launching new regulatory guidance on sustainability disclosures. However, political uncertainty looms as the Coalition have indicated that, if elected, it would seek to abolish these measures.”

Mr Higgins says the uncertainty is causing many companies to pause on ESG commitments.

“Businesses are facing a regulatory rollercoaster. This inconsistency is making companies wary of overcommitting to sustainability targets that may be difficult to maintain under changing political and economic conditions.

Despite the regulatory pullback, Mr Higgins believes transparency remains crucial.

“Ultimately, investors need information, and we’ve seen this play out in Australia in the past, with ESG related scandals at AMP, Crown, and Rio Tinto, and more recently with Wisetech and Mineral Resources,” he says.

“While some firms are withdrawing from high-profile ESG initiatives, investor demand for ESG & sustainability data continues to grow. Businesses that fail to disclose material ESG risks could find themselves at a disadvantage in the long run.”

The retreat from ESG commitments could have long-term consequences, not only for corporate reputations but also for financial risk management. Investors, particularly those with long time horizons, recognise that ESG data represents decision critical information.

“The reality is that ESG considerations are now deeply embedded in the investment process,” Mr Higgins said. 

“Ignoring these factors doesn’t make them go away. Whether or not the information is there doesn’t remove the risks.”

Despite the current greenhushing trend, Mr Higgins says ESG reporting will not disappear entirely. Instead, companies are likely to adopt a more strategic and selective approach, focusing on materiality rather than broad, sweeping commitments.

“While regulatory uncertainty may slow ESG progress, companies that integrate decision making around ESG and sustainability into their core strategy, rather than treat it as a PR exercise, will future proof their business and investor appeal,” Mr Higgins said.

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Dugald Higgins

Despite political debates around climate reporting, ESG remains a critical factor in business strategy, Dugald Higgins, head of responsible investment and sustainability at Zenith Investment Partners said.

While Australia’s federal Coalition has pledged to abolish climate reporting requirements under the Australian Sustainability Reporting Standards (ASRS) if elected, ESG considerations are deeply embedded in corporate decision-making and will continue to evolve.

“Sustainability isn’t dictated by political cycles. It’s driven by economic and environmental realities,” Mr Higgins said.

“ESG and sustainability aren’t disappearing; they are maturing.”

Regardless of political shifts, businesses will continue to determine what ESG factors are material to their operations. A significant majority of ASX200 companies are already reporting, or have committed to reporting, under the Taskforce for Climate-related Financial Disclosures (TCFD) framework.

“Businesses decide what is material to their business. These companies have already invested in sustainability reporting, and they are unlikely to stop,” Mr Higgins said.

“While today’s challenges may temporarily slow momentum, they will also shape a more sophisticated and economically driven approach to ESG.”

Internationally, regulators are ramping up efforts to standardise sustainability reporting.

Mr Higgins said Australia was among the first countries to mandate an International Sustainability Standards Board-aligned (ISSB) standard, which came into effect this year. Other key investment hubs in the APAC region, including Hong Kong and Singapore, have also adopted ISSB standards.

Currently, 30 regional jurisdictions are working on introducing ISSB standards to their respective regulatory frameworks.

“These jurisdictions represent over half of global GDP, including 70 per cent of Australia’s export partners,” Mr Higgins said.

“While regulation is converging, we are also seeing politicians, companies and investors begin to scale back some stances as shifting geopolitical dynamics alter, particularly in the United States and European Union.

“Despite these shifts, it doesn’t mean ESG is being abandoned, they are just going to be more focussed on ESG and sustainability as a driver of economic opportunities and demonstrating the value of these policies.

“Changes to green energy incentives and other sustainability focused investments can reflect populist policies, but they don’t change the long-term drivers of decarbonisation.”

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Dugald Higgins

The Australian regulator is taking an increasingly aggressive stance against greenwashing, having issued approximately $11.4 million in penalties within the funds management industry since 2022, and this amount is set to jump in the wake of ongoing legal cases, says Zenith Investment Partners head of responsible investment and sustainability, Dugald Higgins.

He says the recent Federal Court case involving Active Super should serve as a universal warning for fund managers.

“The Active Super case puts fund managers on notice that they can’t rely on technicalities and evidence to support reasonable grounds. They must also consider how the information will be understood by a reasonable person,” Mr Higgins said.

Although regulatory guidelines provide direction, a growing collection of case law adds complexity as regulators and courts try to apply existing laws to swiftly changing problems.

“The courts have clearly signalled they have little patience for a rigid or technical interpretation of language.  A new term, ‘greenruling’, is coming into play, where too much reliance is placed on rules and technicalities in disclosures, not what a realistic explanation should be.

“It is vital for issuers to cautiously tread the line between what is considered reasonable grounds and how a reasonable individual would interpret any claims. This is not in conflict with ASIC’s guidelines, which focus more on emphasising that claims must be founded on reasonable grounds,” he said.

Zenith sees the Active Super case as providing a critical learning opportunity for the investment industry.

When putting a claim through any greenwashing test, Mr Higgins says evidence is essential to back any claim.  Following the Active Super case, he has developed a six-question test for fund managers to test for greenwashing.

“First, product providers must ask if a claim is transparent, accurate and clear to ensure an informed choice?

“The second question is whether there’s current, credible evidence to support any claim?

“Thirdly, does it tell the entirety of the story without obscuring the other parts of the overall impact?

“The fourth element is whether the claim is unconditional, or does it contain partially correct or incorrect aspects, or are there conditions that apply? If there are caveats, are they transparent?

“Fifth – if product comparisons are used, is the basis for the comparisons fair, accurate and clear?

“And finally, product providers must ask if the claims are simple enough to be understood and assessed by consumers?”.

“Clearly, in light of recent events, it’s the question of simplicity that’s easy to misjudge. We all recognise that claims must be supported by reasonable grounds, and reasonable grounds must be supported by evidence. However, we also need to recognise that while evidence is part of the solution, it must not be at the expense of understanding,” Mr Higgins said.

The Australian financial regulator recently published a report on its actions against greenwashing misconduct for the 2023–2024 period (REP 791) and concluded that their “surveillance indicates there is ample room for improvement”. The report highlights that greenwashing is not uncommon among investment managers and there is the potential for consumers to be misled.

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Dugald Higgins

Conversations on carbon

With Australia on the cusp of implementing mandatory climate reporting in financial statements, much has been written on what’s required, what’s included and who’s captured. While finalisation of the implementation phase is essential, so too will be educating the market on what these disclosures mean in practice. For investors and advisers, understanding a profit and loss statement or fund performance metrics is fairly straightforward. We’re now entering a new world where understanding the nuances of emissions reporting will be a necessary skill.

Sourcing emissions

We all know that Greenhouse Gas emissions come from a variety of sources, as can be illustrated here.

Global GHG emissions by sector

Source: OurWorldInData.org, 2020

But this is a system-wide picture. What does this mean when you get this data provided at a company or fund level?

Understanding a company or fund’s carbon footprint involves delving into the mysterious world of carbon measurement. To gain a comprehensive overview, entities must measure three distinct types of emissions:

• Scope 1- direct emissions from sources that are owned or controlled by the company, such as fuels burned on-site or company vehicles,
• Scope 2 – indirect emissions from the generation of purchased energy, primarily electricity, used by the company, and
• Scope 3 – all other indirect emissions that occur in the company’s value chain, such as business travel, procurement and waste.

While many companies and funds already report this data on a voluntary basis, under Australia’s proposed new climate reporting rules, this data will become mandatory for thousands of entities. So, like any data that’s considered material, investors will have to learn how to understand its context and relevance.

Balancing the scales of carbon exposure

For industry insiders, understanding relative exposures inside markets, such as country or sector is standard practice. Now we must consider carbon exposures. By employing metrics like Weighted Average Carbon Intensity (WACI), which measures tons of CO2 equivalents per million dollars of sales, we can start to see the relative ‘weight’ of carbon exposure within a market, and therefore a portfolio. Using MSCI data, we can also look at a series of indices to assess these characteristics. For example, the carbon intensity of the MSCI ACWI Index by sector weight provides valuable insights into carbon exposure levels.

Source: MSCI

Moving past sector exposures, let’s explore equity market capitalisation sleeves. In the Australian market, carbon emissions tend to be more pronounced in large cap companies, whereas in global markets, they lean more to toward the smaller end of the spectrum. This is logical given the relative sectoral exposures in each market.

Source: MSCI

The point here is less about the actual carbon numbers, as these can change materially depending on methodology and data provider. More important is that investors and advisers start to develop a sense of what carbon intensity looks like on a relative basis across market segments. This understanding enables them to better grasp the potential biases inherent in specific funds and what constitutes a typical carbon profile.

This can be especially important if pursuing an ‘ESG’ strategy. While ESG can be interpreted in many ways, understanding that even across ESG indices, carbon reduction compared to the broader market can vary greatly, not just in terms of reduction in emissions intensity, but also stock diversification. As shown in the selection of MSCI indices below, the reduction in carbon intensity can be anything from 36% to 66%, a material spread. As with everything, outcomes will depend on portfolio design and objectives.

Source: MSCI

Navigating carbon complexity – not as easy as 1, 2, 3   

While the concept of emissions relatively is simple, the realities are more complex. In the above charts, we have looked at estimates of total emissions inside market segments, Scope 1, 2 & 3. However, depending on the nature of operations, some sectors have radically more emissions coming from direct versus indirect sources. Looking at global markets, we can see that while energy, materials and utilities are still sitting heavily across all scopes, other market segments have minimal exposure to Scope 1 & 2 emissions, the bulk being indirect.

Carbon Emissions EVIC Intensity by MSCI ACWI IMI sector

Source: MSCI ESG Research, as of Dec. 30, 2022

This highlights several critical points. You need to understand which ‘Scopes’ are included when assessing carbon data. Under the proposed Australian reporting rules, Scope 3 emissions are potentially only reportable if ‘material’. It also has a bearing on how easily (or not) a company or fund will be able to address any emissions reduction objectives. And lastly, it creates issues with cross-border disclosures. Some jurisdictions like Europe are mandating all scope emissions in reporting. Others, like the US, are proposing only Scope 1 & 2 be disclosed. The devil is in the detail.

The complexity deepens when considering there are various ratios that can be used in calculating carbon intensity. While standardised approaches like WACI offer consistency, they may not suit every scenario perfectly, creating loopholes that require careful navigation.

Overarching all of these data points is the necessity of understanding context. What does this number mean for me? What is its relevance to the fund I am assessing? Is it central to a thesis, or just supporting information? What do I measure it against? How does it support or detract from an investment strategy?

Why does this matter?

In a democratic world, not all investors care about sustainability in their investments or consider emissions data meaningful. Yet, emissions can serve as an indicator of other types of risk. High-emissions assets may face exposure to shifts in climate policies, energy prices and stakeholder sentiments, while lower-emissions assets can present distinct opportunities along with potential challenges.

Ultimately, emissions data is just another factor in the mix, seeking to illuminate what is material for a company. As investors, we need to be informed of these considerations, just as we do the contents of the traditional financial statement. Increasingly, we need to learn the language of sustainability to navigate a new shift in the disclosure landscape.

By Dugald Higgins

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Dugald Higgins

The proposal requiring financial services businesses and managed funds to include climate metrics in their financial reporting is leading to complications, particularly around consistency in reporting standards, says Zenith Investment Partners head of responsible investment and sustainability, Dugald Higgins.

The new law, proposed by Treasury, would require a range of companies and managed funds to incorporate sustainability and climate data into their annual financial statements. Higgins said he supports standardising such disclosures for both companies and funds.

“Standardising disclosures across firms and funds is critical to offering complete information to investors, specifically regarding carbon emissions,” he said.

However, Higgins noted issues with the way the reporting requirements are being proposed.

“The new reporting standard is based on a framework designed for companies, not funds, so it creates problems in developing a level playing field for reporting.

“This is now further complicated by a divergence in proposals between the Australian Accounting Standards Board [AASB] and Treasury, creating a great deal of uncertainty for issuers of funds.

“One proposal would result in the majority of the market being captured under a system prone to instability and lacking transparency for fund reporting. The other scenario improves on these areas, but only captures a small minority of the market. How is the industry supposed to interpret that?

“Standardising disclosures will only help the market if it’s fit-for-purpose. The current ambiguity from Treasury and the AASB seems to actively create information asymmetry, not reduce it. We are not suggesting that every fund can, or should, report, but clarity is urgently needed.

“With the managed funds industry worth $3 trillion, itis disruptive and confusing if the rules are continually rewritten, as we have found with some other jurisdictions such as the US, UK and Europe,” Higgins says.

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Dugald Higgins

Even if a fund manager’s formal ESG disclosures are correct, their translation into marketing materials can still trigger greenwashing allegations, says Zenith Investment Partners head of responsible investment and sustainability Dugald Higgins.

Higgins says that in three of the most recent cases of civil litigation between the Australian Securities and Investment Commission (ASIC) and investment managers on greenwashing, there was a disconnect between the actions being taken versus how they were being articulated in marketing activity.

For example, in one case ASIC issued an infringement notice to a super fund for overstating its positive environmental impact in a social media post.

“Disclosure requirements on ESG and sustainability issues are rising exponentially, with regulators doubling down and reminding product providers that claims around environmental and sustainability-related issues are being scrutinised,” Higgins says.

“We have seen the release of ASIC’s information sheet on avoiding greenwashing in June 2022, followed by the Australian Competition and Consumer Commission’s (ACCC) July 2023 release of comprehensive draft guidelines on environmental and sustainability claims, noting that financial services are not exempt from Australian Consumer Law.

“In addition, the Australian Senate is currently conducting an inquiry into greenwashing with particular reference to company claims, their impact on consumers, advertising standards and legislative options to protect consumers from greenwashing.”

Higgins notes this rise in ESG regulation has led to ‘greenhushing’, whereby fund managers remove or drastically reduce available information on how responsible their investments are to avoid any greenwash allegations.

Since ASIC’s first civil litigation against a major investment manager in February 2023, Higgins has noted an observable increase in greenhushing locally, but also adds it will not work as a tactic for two main reasons.

“Firstly, the financial world is undergoing one of the biggest changes in reporting standards in over 50 years. Love them or loathe them, most jurisdictions globally are preparing to localise standards mandated by the International Sustainability Standards Board,” he says.

“In Australia, climate-related financial reports are set to be mandated for much of the real and financial economy and Parliament has legislated the ambition to reach net zero by 2050. This mirrors actions from many major global trading partners.

“Clearly, going dark on disclosures is not an option.

“This was echoed in a recent speech by ASIC Chair Joe Longo, who stated that ‘greenhushing is in our view just another form of greenwashing, and risks misleading by omission. Silence from firms and failing to engage isn’t the answer’.

“Secondly, if you sell a fund on the basis of its sustainability attributes and then withdraw the claims or remove evidence supporting them, you’re denying your clients the full picture,” Higgins adds.

“Clients may rely on certain claims at the time of purchase, and removing that information should raise legitimate concerns. Adopting a code of silence does a disservice to the end investor.

Higgins says it may result in clients choosing to avoid, abandon or retaliate against a product in protest.

While there may be no perfect solution yet disclosing ESG credentials, Higgins says the accuracy and transparency of communications from fund managers to their clients and to the regulators is critical. This includes marketing communications.

“Firms need to ensure the right response is made, and respond with knee-jerk reactions that are unlikely to solve the problem,” Higgins says.

“Financial products are complex by nature but when you add ESG or sustainability factors into a fund’s design, the complexity and subjectivity increase. This creates problems when dealing with clients who have varying levels of financial sophistication.

“While there is a fine line between being accurate enough to be correct and being succinct enough to be understandable, the message is clear. Managers and promoters of any products featuring environmental or sustainability claims need to be prepared to defend their claims.”

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