Misleading conduct in relation to sustainable finance, including greenwashing, will remain a top priority of the Australian Securities and Investments Commission (ASIC) in 2024.
ASIC chair Joe Longo singled out sustainable financial reporting and disclosure as one of the corporate regulator’s key focus areas for enforcement action in the coming year, during an address at the ASIC Annual Forum on Tuesday.
According to Mr Longo, the issue of greenwashing continues to pose a “serious threat” to the integrity of Australia’s financial system and to investor confidence.
“Put simply, it erodes trust, which is essential for the operation of fair and efficient markets,” he said.
“It’s also imperative that we maintain market integrity to attract the capital required to make the transition to net zero and ensure that climate risk is adequately priced into the market.”
Amid growing demand for sustainable products in Australia and around the world, Mr Longo said it was imperative that firms avoid misrepresenting the extent to which their products or strategies are environmentally friendly, sustainable or ethical.
“Greenwashing directly undermines credible efforts to reduce emissions and address the climate crisis. ASIC is acting, and will continue to act, to prevent investor harm from greenwashing, and to support effective climate-related governance and disclosure,” he said.
The regulator has identified poor sustainable finance governance and related misleading disclosure as being an area of “serious potential harm” to consumers.
“Sustainable finance is a transformational issue for global markets. As I’ve said before, it’s driving the biggest changes to financial reporting and disclosure standards in a generation, and we need to be ready to meet those changes,” Mr Longo continued.
The ASIC chair warned that poor governance and misleading disclosure can directly harm consumers in a number of different ways and may result in misinformed investment decisions and capital allocation.
“When consumers are unaware or misinformed about the true environmental impact of products and services, they make choices that are harmful to the environment – and at direct odds with their intention in making what they thought was an informed decision,” he said.
“In addition, of course, inefficient capital market allocation may also result in higher long-term costs.”
Additionally, he noted that consumers may end up paying a “green premium” to invest in a product that doesn’t actually meet ESG standards.
“This, coupled with consumers’ inability to make informed decisions due to poor governance and disclosure may erode confidence in the financial system as a whole. Not only is this going in the opposite direction from our destination, it also ends up undermining the sector’s objectives,” Mr Longo warned.
As revealed on Tuesday, misconduct relating to the erosion of superannuation balances is also one of ASIC’s enforcement priorities for the coming year.
Mr Longo suggested that poor marketing and distribution and advice practices by super funds leaves members in sub-optimal investment choices and leads to poor investment returns.
“Members suffer financially and emotionally as a result of superannuation fund governance and administration falling short of what Australians should expect from a mature superannuation system,” he stated.
Members must be at the heart of decision making in relation to how super products are developed, governed, and marketed, according to Mr Longo.
However, a review by ASIC and the Australian Prudential Regulation Authority (APRA) earlier this year found that funds have displayed a “lack of progress and insufficient urgency” in embracing the retirement income covenant (RIC).
“We will take strong action to protect consumers against conduct that is not efficient, honest, and fair in this sector,” Mr Longo added.
While ASIC has recently been subject to criticism over a perceived lack of action, Mr Longo argued that the regulator is “one of Australia’s most active law enforcement agencies”.
“ASIC’s track record, in the last several years in particular, is one of constant, targeted, and ambitious litigation. And we plan to do more. We stand by our record,” he continued.
“Despite assertions flying in the face of the evidence, ASIC is very much committed to law enforcement. Our record demonstrates this.”
