Greenwashing: what you need to know16 Jan 2023 4 min read
Greenwashing has been making the news recently. The Australian Securities and Investments Commission (ASIC) issued its first fine for greenwashing in October and its enforcement priorities for 2023 include ‘misleading conduct in relation to sustainable finance including greenwashing’. While the penalty it imposed was small ($53,280), it was an important signal.
ASIC Deputy Chair Sarah Court said that “Companies are on notice that ASIC is actively monitoring the market for potential greenwashing and will take enforcement action, including court action, for serious breaches.”1
The Australian Competition and Consumer Commission (ACCC) has also said that it will focus on ensuring claims are truthful, quoting international estimates from consumer protection groups that 40% of environmental claims (such as being net zero) are false.2
And it’s not just Australia’s corporate regulators taking a keen interest in misleading environmental claims. The European union and the US Securities and Exchange Commission are also seeking to address issues of ESG disclosure and compliance, and the United Nations (UN) recently issued a report into net zero commitments by ‘non-state entities’ (businesses, financial institutions, cities and regional governments).
What is greenwashing?
Let’s take a step back and define greenwashing. The term was coined in 1986,3 and refers to marketing or public relations that positions a company as being more environmentally friendly than it really is. Examples of greenwashing in consumer goods are easy to find — think of packaging that features images of nature and greenery, or words like ‘natural’, that lead you as a shopper to assume that the product or producer is environmentally friendly, when closer inspection may reveal it to be no more so than a similar product.
In the context of investment products (which includes super), ASIC defines greenwashing as “the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical”.4
Why does it matter?
Quite apart from the fact that consumers have a moral right to expect honesty in product descriptions (the UN report mentioned above is called ‘Integrity Matters’), greenwashing of investment products can have significant repercussions:
Misrepresentation of such products poses a threat to a fair and efficient financial system. Essentially, this misrepresentation distorts relevant information that a current or prospective investor might require in order to make informed investment decisions driven by ESG considerations.5
As the real impacts of climate change become more obvious, the demand for sustainable products, including financial products such as super, has increased. The concern is that unscrupulous companies may look to leverage this demand by making claims that don’t hold up to closer inspection.
Have you heard of ‘greywashing’?
“Greywashing” is closely related to greenwashing, and refers to the setting of a strategy and policies which seem to be aligned with ESG principles but are too unambitious, ambiguous or qualified by exceptions and loopholes to result in meaningful change.
What should you look out for?
Issuers of financial products are already required to comply with strict regulatory requirements — misleading and deceptive statements and conduct are prohibited, and there are also significant disclosure obligations.
While it is likely that more regulatory standards will be developed in the future, in the meantime there are things that you, as a consumer, can look out for if you’re considering a financial product on the basis that it is environmentally friendly/addresses climate change issues:
- Does the company/issuer make a voluntary disclosure in accordance with the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) framework?
- What do these disclosures say about the company’s governance, strategy, risk management and targets as they relate to climate change?
- Does the company/issuer provide detailed information about how it plans to achieve targets such as net zero and how do they plan to report on their progress?