ASIC Releases Some Additional Guidance on Greenwashing

By: Jim Bulling and Anthony Shorten

Much of the recent media commentary on greenwashing has revolved around enforcement action taken by ASIC against entities who have misled investors or shareholders. However, there has been less discussion on best practices for entities looking to avoid greenwashing.

In ASIC’s recently released Report 791, ASIC provided entities with some recommendations and good practice examples in order to avoid potential instances of greenwashing. These examples include the following:

• For entities who are voluntarily disclosing their climate-related metrics, ASIC suggests that they consider the disclosure requirements set out in the Australian Sustainability Reporting Standards.

•  ASIC recommends that entities verify investments for consistency against disclosed investment strategies. Entities should ensure that sufficient steps are taken to confirm that investments made are verified as being consistent with the claims made about the funds’ investment strategy, in order to avoid potentially misleading investors.

• It is also recommended that the criteria used to screen prospective investments be adequately provided to potential investors. This includes clearly explaining terms used in the screens that may be vague or ambiguous, and indicating whether screens are absolute, or whether they are threshold based.

• For entities issuing green bonds, ASIC states that they should ensure investors are not misled regarding their plans for the allocation of the proceeds of bonds issues or the nature of any specific projects being financed.

• In respect of a hypothetical ASX listed company ASIC suggests that good practice would be for the entity to note its targets, the time frame for achieving those targets, details of progress made against each target, along with a note of whether the entity’s progress was on track.

• If an entity makes references to active ownership and meeting with investee companies, it should provide clear information to investors about its approach to engagement and proxy voting and the effectiveness of the program. ASIC provides an example a case study that outlines a superannuation fund’s interactions with a company the fund had invested in, including the number of engagements and the nature of them.

Should you have any queries in relation to any of the recommendations and good practice examples provided by ASIC or in relation to greenwashing generally, please contact Jim Bulling.