Greenwashing: ASIC’s move from rinse to spin cycle?

Over the past year or so, the Australian Securities and Investments Commission (ASIC) appears to have moved on from educating the market about the emerging trend of entities misrepresenting the extent to which a practice, financial product (such as shares) or investment strategy is environmentally friendly, sustainable or ethical, otherwise known as ‘greenwashing’, to actively taking enforcement action against or otherwise intervening in entities’ conduct in such circumstances.

The bulky items: Legislative requirements

ASIC’s concern with respect to greenwashing is derived from a few legislative sources. For example, the Corporations Act 2001 (Cth) (Corporations Act) generally prohibits persons from making statements or disseminating information if:

1. the statement or information is false in a material particular or is materially misleading; and
2. is likely to induce persons to apply for, dispose of or acquire financial products, or affect the price for trading financial products on a financial market; and
3. when the person makes the statement or disseminates the information:

i.  the person does not care whether the statement or information is true or false; or
ii.  the person knows, or ought reasonably to have known, that the statement or information is false in a material particular or is materially misleading.¹ 

In addition to the above, the Corporations Act and Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) both contain further provisions with respect to engaging in dishonest conduct,² misleading and deceptive conduct,³ and making false and misleading representations.⁴

Greenwashing has also received significant attention from the Australian Competition and Consumer Commission. The Australian Consumer Law (found in the Competition and Consumer Act 2010 (Cth)) similarly prohibits conduct in trade or commerce that is misleading or deceptive or is likely to mislead or deceive.

Separating the colours from the whites

As recently as last month, ASIC announced that it was taking enforcement action against Active Super, a superannuation fund with approximately A$13.5 billion in super assets, alleging misleading conduct and misrepresentations to the market, relating to claims that it was an ethical and responsible superannuation fund. Specifically, ASIC alleged that Active Super made investments in various industries, such as gambling, tobacco, Russian entities, oil tar sands and coal mining, while at the same time claiming to its members that Active Super restricted exposure to such holdings.⁵ 

The ongoing Active Super case is just the latest in a list of recent actions commenced by ASIC concerning greenwashing. Other actions recently revealed by ASIC to allegedly constitute greenwashing include:⁶ 

1. disclosure involving ‘net zero’ statements and targets, as well as claims of decarbonisation without a reasonable basis;
2. use of wording such as ‘carbon neutral’, ‘clean’ or ‘green’ without a reasonable basis;
3. labels to certain financial products or managed funds being inconsistent with the funds’ investments or the investment process described; and
4. investment screens, used to filter types of investments based on characteristics or features, being inconsistent with the description used or otherwise not complied with. 

Selecting eco mode: What should you do to avoid greenwashing?

As investor demand for, and the availability of sustainability related products has increased, so too has the risk of greenwashing, as well as investors being misled or confused as a consequence. It is against this background that ASIC has intensified its focus on greenwashing, with a view to protecting consumers and investors against environmental, sustainable, or ethical claims which do not have a reasonable basis. In this climate, entities should be adopting a proactive approach to ensure they are not exposed to the risks of greenwashing.

ASIC also provides recommendations as to the steps which can be taken by entities to minimise the risks of greenwashing in its Information Sheet 271. We include some of these recommendations in the list below.

1. Understand what greenwashing is. Although different regulatory bodies may have slightly different definitions, broadly speaking, ASIC describes ‘greenwashing’ as the practice of misrepresenting or overrepresenting the extent to which a practice, financial product (such as shares) or investment strategy is environmentally friendly, sustainable or ethical.
2. Statements made in promotional, marketing or disclosure materials need to have a reasonable basis. Consider whether statements concerning current environmental or social credentials are able to be supported or objectively grounded, particularly in marketing and disclosure materials. Consistent with ASIC Regulatory Guide 65, entities should be aiming to ensure ‘truth in promotion’ such that the labels used are clear and that sustainability-related terminology is defined.

Ask yourself, if someone were to look into these claims, would you be able to substantiate them? Is there a reasonable basis to make such claims? Have you adequately disclosed any qualifications or limitations to these claims?

3. Use specific and clear language. Avoid using vague terminology or unsubstantiated sustainability-related jargon such as ‘socially responsible’, ‘ethical investing’ or ‘impact investing’, including when explaining investment decisions. Sustainability-related terminology should be defined where applicable. Headline claims should not be potentially misleading and should be appropriately qualified where required. Again, consistent with ASIC Regulatory Guide 65, ‘clarity in communication’ should be a key focus for entities, such that clear explanations are provided of how sustainability-related considerations are factored into investment strategies.
4. Ensure there is a reasonable basis for making future statements. Ensure future targets, goals or projections that relate to environmental and sustainability matters can be substantiated, and that there is a reasonable basis for making such claims. 

Some signs that indicate that there is a reasonable basis for making future representations include:

• having a detailed plan informed by appropriate standards and guidelines;⁷
• having appropriate resourcing allocated to achieving the goal or target;⁸ and
• not relying on unrealistic pathways to achieve goals or targets.⁹  

Organisations should also track the progress towards future targets or goals. Assumptions which future representations, targets or goals rely upon should also be disclosed. Mining and resources entities should also keep in mind ASIC’s guidance in respect of forward looking statements in Information Sheet 214 when publishing particular assertions.

5. Regularly review and update claims. The accuracy of statements can vary with changing circumstances. Review and update sustainability-related claims to ensure they remain accurate and reasonably based.

1. Corporations Act, s 1041E.
2. Corporations Act, s 1041G.
3. Corporations Act, s 1041H; ASIC Act, s 12DA.
4. ASIC Act, s 12DB.
5. Australian Securities and Investments Commission, Media Release (23-215MR), 11 August 2023, Available at https://asic.gov.au/about-asic....
6. See Australian Securities and Investments Commission, ASIC’s Recent Greenwashing Interventions (Report 763), May 2023, Available at https://download.asic.gov.au/m....
7. Australian Securities and Investments Commission, ASIC Infringement Notice, B00725796 (Black Mountain Energy Ltd), 20 December 2022, paras 2(f)(iii)-(iv), 2(f)(iv) and 2(f)(vii); Australian Securities and Investments Commission, ASIC Infringement Notice, S02563037 (Tlou Energy Ltd), 18 October 2022 para 2(e); Australian Securities and Investments Commission, ASIC Infringement Notice, S02563040 (Tlou Energy Ltd), 18 October 2022 para 2(f)(iii).
8. Australian Securities and Investments Commission, ASIC Infringement Notice, B00725796 (Black Mountain Energy Ltd), 20 December 2022, para 2(f)(i).
9. Australian Securities and Investments Commission, ASIC Infringement Notice, S02563039 (Tlou Energy Ltd), 18 October 2022 para 2(f); Australian Securities and Investments Commission, ASIC Infringement Notice, S02563037 (Tlou Energy Ltd), 18 October 2022 para 2(e)(v).