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Out-Law Analysis 4 min. read

Australia continues crackdown on ‘greenwashing’ activity


A new report published by the Australian Securities and Investments Commission (ASIC) is a clear signal that ‘greenwashing’ remains one of its top enforcement priorities.

The report (10 pages / 314KB PDF) details ASIC’s regulatory interventions in response to greenwashing concerns between 1 July 2022 and 31 March 2023. The document is a useful indicator of how ASIC intends to exercise its surveillance and enforcement powers with respect to suspected greenwashing activities.

The report breaks down ASIC’s regulatory action across four core areas of concern:

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

ASIC has made it clear that surveillance is not confined to disclosure documents, such as a prospectus or a product disclosure statement, and that it will review other relevant sources of information including advertisements and information contained on company websites. As a result of ASIC’s increased scrutiny amid rapidly increasing greenwashing concerns in the broader community, a total of 23 corrective disclosure outcomes, 11 infringement notices and one civil penalty proceeding were issued or commenced during the reporting period.

Transparency and ‘green’ activities

While greenwashing is a comparatively new area of focus for ASIC and there remains a degree of uncertainty as to how this regulatory function will develop in the longer term, ASIC’s enforcement action outlined in the report is largely consistent with an information sheet issued in June 2022. That document provides a detailed guide of principles to follow when making, offering or promoting sustainability-related products. The new report provides a useful supplement to the information sheet by providing real-world examples of actions and claims that fall short of the requirements to avoid greenwashing.

Companies borrowing in the Australian debt markets should also be aware of developments taking place in the bank debt and bond markets regarding the prevention of greenwashing activity. ASIC’s approach to transparency regarding ‘green’ activities has been echoed in the recently released Green Loan Principles (5 pages / 530KB PDF) and Sustainability-Linked Loan Principles (4 pages / 1.36MB PDF).

While not strictly enforceable, these principles have been refreshed to reflect the growing concern about greenwashing held by lenders and underwriters in the debt financing markets and demonstrate how a particular industry may drive behaviour to make transparency and disclosure regarding ‘green’ activities a market standard. This also helps banks and financial institutions to improve their own green credentials.

ASIC’s response to greenwashing activity

The report’s findings relate primarily to investigatory activity in the managed funds sector and for listed companies. However, ASIC has confirmed that the scope of its surveillance will be expanding to also monitor superannuation funds and the green bond market closely.

A review of the four key areas of greenwashing concern reveals that ASIC is taking a strong position on ensuring entities have reasonable grounds for making sustainability related claims, which includes preventing unclear or vague statements regarding the sustainability benefits of a product.

Net zero statements and targets

During the reporting period, ASIC carefully monitored disclosure documents and company websites for claims by entities regarding their decarbonisation or net zero targets, which appeared to be made without a reasonable basis.

In cases where statements were found to be made without a reasonable basis, the following kinds of corrective action were taken:

  • removing the claims from disclosure documents, where no reasonable basis for claims made regarding net zero targets can be found;
  • clarifying net zero targets, including providing more detail on any carbon offset strategy and/or specific implementation and achievement timelines; and
  • removing information on a company website to ensure consistency between net zero statements included on the company website and disclosure documents.
Use of terms such as ‘carbon neutral’, ‘clean’ or ‘green’

ASIC has taken a stance against entities describing their activities as being carbon neutral, clean or green in disclosure documents and market announcements when these claims are made without a reasonable basis. It has issued infringement notices for some of these claims and the following kinds of corrective action have been taken:

  • removal or qualification of ‘clean’ or ‘green’ practices in disclosure documents;
  • further details provided to substantiate claims made regarding ‘low carbon’ technology; and
  • amendments made to disclosure documents including vague terms such as ‘robust sustainable practice’ and ‘protection of the planet’.
Fund labels

Following an analysis into the investing practices of managed funds and other financial products, ASIC identified that some funds were not true to their label. The following kinds of corrective action were taken where the name of a fund indicated a sustainability practice that was not actually reflected in the fund’s investment activity:

  • removing references to sustainability practices in the names of funds that were inconsistent with actual investment practices; and
  • requiring additional information in disclosure documents as to how the fund name relates to the investment practices.
Scope and application of investment exclusions and screens

ASIC identified that, in some cases, investment screens outlined in disclosure documents were vague and overstated with respect to sustainability factors. The following kinds of corrective action were taken:

  • requiring clarification of investing practices in disclosure documents, thereby allowing investors to better understand what is included in the fund; and
  • requiring amendments to disclosure documents to explain how ESG factors contributed to investment making decisions that had a material financial impact.

ASIC is taking a strict approach in this area, evidenced by the fact that its first greenwashing litigation relates to alleged misleading statements about the sustainable nature and characteristics of investment options.

Lessons from the report

Through its regulatory response to the four key greenwashing activities above, ASIC has made it clear that it will be taking a stance against unsubstantiated claims regarding sustainability and positive climate action. Entities should be careful to ensure ‘green’ claims can be supported by sufficient evidence and provide any relevant information to the market that will assist in understanding how and why a particular claim has been made.

ASIC has also made it clear that providing vague claims of sustainability practices in disclosure documents and on company websites is not an acceptable alternative to making a statement that has no reasonable basis. Entities should review the principles set out in the information sheet published in 2022 and ensure they are being followed when producing environmental, social and governance (ESG) information to be released publicly, including in disclosure documents, advertisements and on websites.

Industry-specific practices are also likely to continue to develop significantly in the near future. Entities will likely require guidance navigating the differing requirements of regulators, such as ASIC, and emerging industry standards developed by industry stakeholders concerned about unsubstantiated sustainability claims and other greenwashing practices.   

Co-written by Felix Kafka of Pinsent Masons.

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