Speaking at the Australian Financial Review ESG Summit, the Australian Securities and Investments Commission’s (ASIC) chair, Joe Longo, highlighted that environmental, social, and governance (ESG) is not a burden, or at odds with shareholder returns.
“ESG is not a trend. Nor is it about burdening companies with bureaucracy or shareholders with less-than-optimal returns,” Mr Longo said.
“ESG reporting is simply the next stage in a long series of important moves towards greater transparency and higher disclosure standards. Moves that benefit us all, from the consumer to the investor, to companies themselves — to say nothing of the planet,” he noted.
Mr Longo highlighted that it’s not a question of “shareholder returns or ESG”, but of shareholder returns with ESG.
“It’s a question of fair and efficient markets, and of confident investment,” Mr Longo said.
“Looking ahead to uncertainty doesn’t excuse inaction. Some firms are making good progress, but we cannot let standards slip as we prepare for the major changes ahead,” he added.
Stressing that “changes in ESG reporting tomorrow don’t excuse complacency today”, Mr Longo unpacked ASIC’s current three areas of focus, or the “three G’s”: governance, greenwashing, and growth in sustainable financing.
Governance
While ASIC has been encouraging boards to be more proactive in their approach to ESG issues since the body began scrutinising climate risk disclosures in 2018, Mr Longo said it is important to recognise the good.
“The truth is many large Australian companies have already been engaging on climate-related matters for a number of years.”
However, Mr Longo explained that this is not an opportunity to “rest our laurels”.
“Data is telling us that markets and investors are increasingly relying on this information in order to make decisions. That’s why ESG disclosures and statements need to be rigorous, robust, and comprehensive. And it should go without saying, they cannot be misleading or deceptive.”
The Australian government has also made clear its intentions to mandate climate disclosures, which Mr Longo said should not be cause for concern.
“It is simply a reminder that good disclosure depends on good governance.”
Greenwashing
Last month, ASIC released a report highlighting a number of its recent greenwashing interventions and revealed that since July last year, the regulator secured 23 corrective disclosure outcomes, issued 12 infringement notices, and commenced its first civil penalty proceedings.
While he couldn’t speak to ongoing actions, Mr Longo said that ASIC has further surveillance and investigations afoot.
“This is important work. It is work that supports trust in sustainable finance-related financial products, services, and disclosures. And trust is an essential element in the workings of any fair and efficient market. So, too, trust is needed if we are to have confident and informed investors,” he said.
As such, Mr Longo singled out companies that might be tempted to cease all voluntary disclosure.
“We’ve observed some commentators and firms saying, in effect, ‘we have such a good ESG policy, but we can’t say anything about it because the regulators won’t let us’ … this kind of response is just another form of greenwashing; an attempt to garner a ‘green halo’ effect without having to do the work.”
Growth in sustainable financing
Conceding that climate disclosures are “only the beginning”, Mr Longo said that further change in the ESG space is imminent.
“I would go so far as to say this is the biggest change in the financial services sector in a generation. We need to be prepared for that change as it unfolds.”
“As Australia’s markets regulator, we recognise that, and we’re engaging heavily at both the domestic and global level to ensure that what we’re doing in Australia is informed by what is happening overseas.”
Mr Longo pointed to carbon markets as one such change, and acknowledged the role it plays in supporting private sector action on emissions reduction.
“When the Clean Energy Regulator appoints an operator, we will play our part in the development of a carbon market in Australia by ensuring standards of integrity and transparency, as we do in other Australian licensed markets.”
He also confirmed that ASIC is working closely with the Treasury as the government’s sustainable finance agenda continues to unfold.
“There’s no denying there’s lot of work ahead. But sustainable finance is an important strategic priority for ASIC, and I’m determined to ensure that ASIC continues to be positioned to meet the challenges ahead,” he concluded.
