The Australian Securities and Investment Commission (ASIC) is currently investigating several listed companies, superfunds, and managed investment funds over their advertised “green credentials.” Attwood Marshall Lawyers’ Commercial Litigation Senior Associate Georgia Taylor explores the regulator’s first Court action against a company for making misleading statements about the sustainability of its superannuation investment options.
ASIC takes action against “greenwashing”
The past year has seen ASIC significantly step up its focus on so-called greenwashing – i.e. when the environmentally-friendliness, sustainability or ethics of a financial product or investment strategy are misrepresented to tempt consumers into investing or signing up to a product.
The regulator, ASIC, published an information sheet in June 2022 setting out how it expects companies to avoid the practice of greenwashing and advising those at risk companies how to steer clear of the marketing trap. It has also named greenwashing as one of its key enforcement priorities for 2023.
As part of its wider regulatory measures, ASIC has issued several infringement notices to companies in the past year totalling upward of $140,000.00. The first was against listed energy firm Tlou Energy Ltd in October 2022. Tlou Energy paid $53,280 over concerns that it had made false or misleading sustainability-related statements about its focus on clean energy, low emissions, and solar capability to the Australian Securities Exchange.
ASIC’s decision in February to launch legal action in the Federal Court of Australia against Mercer Superannuation (Australia) Ltd serves as a warning to all companies that the regulator will not take lightly to any misrepresentation on the sustainability of a financial product.
Vanguard Investments Australia, Diversa Trustees Ltd, Black Mountain Energy and Future Super Investment Services Pty Ltd have also been hit with financial penalties for misrepresenting their sustainable practices or exclusions in their investment strategies.
However, the Court action against Mercer marks the first time ASIC has launched court proceedings against an entity for the alleged practice of greenwashing.
ASIC alleges that Mercer breached the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) by making false or misleading representations and engaging in conduct that could mislead the public over its sustainable superannuation investment options.
Mercer allegedly marketed seven ‘Sustainable Plus’ investment options on its website, stating that they excluded investments in companies involved in the extraction or sale of carbon intensive fossil fuels, as well as companies involved in the production of alcohol and gambling.
However, ASIC argues that the options within the fund had investments in nearly 50 companies involved in these very same activities. Those companies included BHP Group Ltd, Glencore PLC, Budweiser Brewing Company APAC Ltd, Carlsberg AS, Caesar’s Entertainment Inc, Crown Resorts Ltd and Tabcorp Holdings Ltd.
- ASIC are seeking “declarations, pecuniary penalties and adverse publicity orders” as well as an injunction against Mercer “in respect of false or misleading representations and/ or conduct liable to mislead the public”. The penalties that could be ordered if found to have breached the relevant statutory provisions of the ASIC Act have increased to the greater of:
a) 50,000 penalty units (currently $11.1 million);
b) Three times the benefit obtained and detriment avoided; or
c) 10% of annual turnover, capped at 2.5 million penalty units (currently $555 million).
The proceedings also see ASIC use for the first-time new enforcement powers targeting a broader range of superannuation trustee conduct. Those powers were introduced in legislative amendments as recommended by the Financial Services Royal Commission.
ACCC also focusses on greenwashing
ASIC is not the only regulator on the lookout for corporations that portray themselves as sustainable and environmentally friendly without the product and/or action to back it up.
Australia’s competition watchdog, the Australian Competition and Consumer Commission (ACCC), has also announced an enforcement mandate on greenwashing. It said in March that more than half of the near-250 businesses it reviewed during an internet sweep made vague or unclear claims about their “environmental credentials.”
The cosmetic, clothing and food sectors had the highest proportion of concerning claims that the ACCC said warranted further scrutiny.
“Businesses using broad claims like ‘environmentally friendly’, ‘green’, or ‘sustainable’ are obliged to back up these claims through reliable scientific reports, transparent supply chain information, reputable third-party certification or other forms of evidence,” ACCC Deputy Chair Catriona Lowe said in a statement.
“Where we have concerns, we will be asking businesses to substantiate their claims,” she added.
The Australian government also announced in March 2023 that it would give ASIC an extra $4.3 million, earmarked specifically for the development of an Australian Sustainable Finance Taxonomy and to help the regulator expand its surveillance and enforcement functions.
The Treasury department is meanwhile looking at ways to make climate-related reporting mandatory for certain entities, bringing Australia in line with international practice. The department recently closed a public consultation on climate-related financial disclosure, the submissions to which will feed into a specific design proposal that is expected to be published later this year.
All this activity in the enforcement space goes to show that financial institutions offering sustainability-related products and investments (including managed funds and super fund trustees) are being held to a higher standard to make sure they are reviewing their disclosure statements and marketing documents for any greenwashing that may influence consumers into investing in their products.
Compliance and risk management teams, as well as company boards, should be paying heed to the regulator’s repeated warnings about overstating environmental, social and corporate governance (ESG) factors related to investment strategies. They should also be taking note of all publications issued by the respective regulators and obtaining advice in respect of their marketing and cross-checking their campaigns.
Greenwashing is certainly not likely to fade from the agenda any time soon. A growing number of consumers are hungry for sustainable options, and their purchasing decisions are increasingly based on environmental grounds. They are putting pressure on companies to be as green as possible. With that pressure comes the temptation from companies to overreach on their credentials in order to be a leader in environmental/ social change.
Consumers and investors should be able to trust the information that companies are putting out there, and sustainable investment claims must reflect the true position of that product.
Attwood Marshall Lawyers – helping consumers understand their rights
At Attwood Marshall Lawyers, our Commercial Litigation lawyers are well-versed in dealing with banking, finance, and lending institution matters. We will fight for consumers who have suffered significant financial loss as a result of a business breaching consumer laws or misleading their customers.
We use reputable forensic accountants to assess the conduct of the banks and financial institutions and can calculate the losses you may have suffered because of the advice you have received or misconduct of the service provider.
If you are involved in a consumer related matter, please contact our Commercial Litigation Department Manager, Amanda Heather, on 07 5506 8245, email firstname.lastname@example.org or free call 1800 621 071 any time to find out where you stand.