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ASIC puts portfolio managers on notice amid increased greenwashing scrutiny

By Rhea Nath
4 minute read

Portfolio managers have been put on notice by ASIC, as the regulator expands its focus on the governance around sustainable investing in an effort to ensure fund managers are not misleading investors.

An expanded focus on the governance around sustainable representations made to investors and the market is a “logical extension” of the Australian Securities and Investments Commission’s (ASIC) latest greenwashing work, according to the corporate regulator.

In a speech to the RIAA Conference Australia 2024 on Thursday, ASIC chair Joe Longo will highlight the regulator’s focus on ensuring responsible entities in the investment management sector are delivering on the representations made about their funds’ sustainable investment strategies and objectives.

“While this work is ongoing, an early observation we can make is that we have seen instances of investments made by delegated portfolio managers or sub-managers that do not align with the responsible entities’ representations to investors,” Longo will say, according to a copy of the speech provided ahead of time.

“This falls short of our expectations that responsible entities exercise care and diligence in monitoring trading done on behalf of their members.”

Earlier this year, the corporate regulator won its first civil greenwashing penalty action, against Vanguard Investments, and has two other civil penalty proceedings currently underway in the Federal Court.

To date, it has issued 17 infringement notices in this area, totalling over $230,000, Longo will confirm.

“You won’t be surprised to hear me say that not one greenwashing case we’ve taken on has been unwarranted or marginal. ASIC is not in the business of pursuing entities that honestly and accurately disclose their activities – we pursue those who we consider carelessly give inaccurate or misleading statements,” he will say.

“Any entity which is clear, accurate and transparent in its disclosures has nothing to fear.”

However, according to Longo, ASIC will not hesitate to ask questions where statements made in marketing and promotional campaigns have little or no substance to back them up.

He will also elaborate on the main types of conduct that have caused ASIC to intervene, which include:

· Net zero statements or targets that were factually inaccurate or made without reasonable basis.
· Inaccurate labelling or vague terms in sustainability-related funds.
· Use of terms like “green” or “carbon neutral” that weren’t founded on reasonable grounds.
· Inconsistent application or overstatement of sustainability-related investment screens.

Compliance ‘more than a pat on the back’

In March, Treasurer Jim Chalmers announced Australia’s largest companies will be subject to a series of new climate reporting standards come 2025, with the climate reporting bill finally before Parliament following three public consultations in 2023 that gathered over 250 submissions in total.

It has since been backed by an alliance of 15 Australian organisations representing business, finance, shareholders, and retail and institutional investors who shared that a climate reporting framework that incentivises high quality, useful, and internationally aligned climate-related disclosures is “essential” to maintain Australia’s place in the global economy.

In the speech, Longo will warn against scrambling to comply with a new regime.

“It’s simply not an option for industry to put off preparations, and then scramble to comply. Reporting entities have to be doing the work now – marshalling the data, embedding the capabilities, and keeping the necessary records,” Longo will say.

Particularly, he will highlight misconceptions that suggest the new reporting regime will only serve to increase compliance costs for businesses.

“This is wrong. To equate compliance with loss of profit is effectively to say that the best business is a dishonest one, and that compliance is simply a brake on business. But this doesn’t hold water. The battle against greenwashing is a fight to ensure honesty in our markets,” the ASIC chair will highlight.

“The best business is a business that has the trust of its investors and its consumers. And since compliance builds trust – and greenwashing erodes it – it is in everyone’s best interests to be compliant. Let me say it plainly: a compliant business is a profitable business.”

According to Longo, while the climate-reporting requirements will impose new obligations, they can foster trust and help companies benefit from climate-related opportunities of other entities in their value chain and more visibility on these issues across the entire economy.

“This will support companies in managing their own climate-related risk and opportunities over the short, medium and long term – in the best interests of the entity and its shareholders. More effective reporting means more awareness, and more informed – and, one would hope, better – decisions. This makes for better business,” he will affirm.