ASIC to review ESG funds for greenwashing

A woman sits reviewing paperwork.

The Australian Securities and Investments Commission (ASIC) has announced that it is conducting a review of environmentally focused investment funds. The regulator expressed its concerns over potential ‘greenwashing’, as demand for more ethical and environmentally friendly investments grows.

Sadly, greenwashing has been around for a long time. It refers to the misrepresentation of a product to make it seem more environmentally friendly. 

The demand for good investments

In 2020 the Responsible Investment Association Australasia (RIAA) found that 86% of people in Australia expect their savings and superfund to be invested responsibly and ethically. Younger generations in particular said they would be more inclined to save and invest, if they knew their money was having a positive impact on the planet.

ASIC commissioner Cathie Armour writes in a statement that to meet this demand more funds are now offering ESG-focused investment products. That is investments offering positive impacts either environmentally, socially or through corporate governance. In other words, funds that are not harmful to the planet or people. 

Greenwashing in the investment space

Whether a company is greenwashing or not can be quite hard to suss out, as culprits often spend a lot on shiny advertising campaigns focusing on just how green they are. That is rather than actually making any real changes to their business, or what they are selling that would have a positive impact on the planet.

ASIC is now concerned that this could be happening with investments, as ESG funds become more and more popular. Armour writes that there is growing unease around the world about the risks of greenwashing in the financial space. For this reason ASIC has also joined the Sustainable Finance Task Force established by the International Organisation of Securities Commissions. The task force is looking into greenwashing in the industry.

Regulators are also concerned about greenwashing as there is currently a lack of standardisation or clarity around what is labelled as an ethical investment. Greenwashing and a lack of clear labelling for ESG products, could lead people to invest in or sign up to funds that are not actually what they seem.

This latest review from ASIC follows on from the regulator's review of climate risk disclosures from large listed companies. While ASIC found that standards had improved, it did note that a number of disclosures had a significant marketing feel. 

How to spot greenwashing

As we mentioned before, greenwashing is usually all fancy advertising and no substance. The problem is advertising can be quite convincing. In cases like these, the only thing to do is to try to dig beyond the marketing campaign. 

Here are just some questions to ask yourself:

  • Does the company explain in detail how its investment is environmentally friendly?
  • Does it have fact sheets, testimonials from reliable sources and certifications from third parties?
  • Is it B Corp certified? Does it have the tick of approval from Market Forces?
  • Does the investment company clearly disclose its own carbon emissions and what it is doing to improve?

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