ASIC continues to take action on greenwashing

With climate reporting mandatory in Australia starting in 2025, it is vital that companies making ‘green promises’ do so based on accurate and reliable data. Sweeping, unsubstantiated, generalised statements about an entity’s Environmental, Social, and Governance (ESG) record literally won’t ‘wash’ with the Australian Securities and Investments Commission (ASIC), which continues to monitor and intervene in cases of ‘greenwashing’ misconduct.

Since 2022, ASIC’s strategic priorities have included sustainable finance and acting to reduce harm from greenwashing. Greenwashing claims can mislead investors and consumers and undermine confidence. By intervening, ASIC aims to stamp out misleading and deceptive conduct to maintain trust in sustainable finance-related products and services.

Interventions outcomes

ASIC’s 47 interventions resulted in:

• 37 corrective disclosure outcomes
• 8 infringement notices being issued
• 2 civil penalty proceedings commenced.

One civil penalty proceeding was also finalised, resulting in an $11.3 million fine for the affected entity.

Types of entities involved in greenwashing

ASIC’s surveillance activities covered a broad range of sectors, including listed companies, managed funds, superannuation funds and the wholesale green market.

Reasons for interventions

The four main reasons for ASIC’s interventions related to:

• Underlying investments that were inconsistent with disclosed ESG investment screens and investment policies
• Insufficient disclosure about the scope of ESG investment screens and investment methodologies (i.e. what was the entity doing to ensure its investee’s green claims were accurate)
• Sustainability-related claims made without reasonable grounds
• Sustainability-related claims made without sufficient detail.

Examples of greenwashing misconduct

Report 791 provides examples of ASIC’s findings for each of the four categories of interventions noted above.

Investments not aligned with stated ESG criteria and policies

With respect to interventions because entities’ underlying investments were inconsistent with their disclosed ESG investment screen and investment policies, ASIC observed instances where:

• The investment screens and methodologies were applied differently for indirect investments, as opposed to direct investments
• A fund’s underlying investments did not align with their disclosed ESG investment policies or screens. In other words, the fund invested in entities or projects that did not meet its ESG objectives.

ASIC issued four infringement notices in this regard.

Lack of disclosure on ESG investment screening and methodologies

Investment screens are used to either include or exclude investments such as shares, based on specific characteristics or features. ASIC observed instances where the scope of investment screens or methodologies could have been more specific and clear. As a result of infringement notices, corrective disclosures were made, including:

• The investment screening process was clarified
• The ESG scoring process was explained
• Exposure to fossil fuels was clarified
• Sustainability-related considerations were explained, including a more detailed explanation of how they were factored into the investment process, and providing a list of pre-defined investment exclusions
• Disclosure was added about how screens were applied
• Disclosure about the fund’s approach to achieving ESG objectives was refined
• Additional disclosure was provided on the fund’s use of negative screening (how it excludes certain investments)
• The investment process was better explained
• Sustainability disclosures were improved
• Investment screening criteria were amended
• The overstated emphasis on the ethical investment approach was corrected
• Screening methods were published online.

Sustainability-related claims made without sufficient grounds

An interesting point is that ASIC is not merely alert to greenwashing claims in an entity’s annual report. Its interventions on this topic included reviews of claims made in prospectuses, websites, promotional materials and market announcements. ASIC noted claims without sufficient grounds about emissions profiles and environmental impacts and statements about projected revenues and project status.

These interventions resulted in the following corrective disclosure outcomes:

• Unfounded ‘zero carbon’ claims were corrected
• Unfounded ‘negative carbon’ claims were removed
• Scope of ‘neutral carbon’ claims were clarified
• Carbon capture and storage revenue projections were retracted
• Unsupported environmental claims were removed
• Claims about sustainable operations were withdrawn.

Sustainability-related claims made without sufficient detail

ASIC noted instances where investors were not provided with enough information to understand the various sustainability-related claims and initiatives, such as the weight placed on sustainability-related factors.

Some of the resulting corrective disclosure outcomes from ASIC’s interventions were:

• Further detail was disclosed about sustainability initiatives
• More information was provided about carbon emissions statements, for example, the use of renewable energy and the absence of hazardous chemicals in the production process
• Greater clarity, consistency and detail was provided regarding sustainability-related claims
• Clarification was provided on how fund product labelling works
• More detail was given about the impact of a bidder’s climate-related strategy
• Detailed disclosures were made about how ESG factors apply when making investment decisions
• The ESG risk assessment method was explained, and the ESG risk management approach was clarified
• Outdated claims were amended
• The approach to considering ESG factors was clarified.

Recommendations from ASIC’s surveillance activities

Report 791 summarises ASIC’s high-level findings, key recommendations and good practice examples identified from its greenwashing surveillance activities during the financial year 2023–2024.

How can entities avoid greenwashing?

ASIC encourages product issuers, company directors and advisers to improve the quality of ESG disclosures and the data that underpins them. Disclosures should be based on reasonable grounds, use plain language that investors can understand, and be accurate and data-driven. Entities should refer to Report 791 and Information Sheet 271 How to avoid greenwashing when offering or promoting sustainability-related products.

ASIC’s role regarding mandatory climate reporting

ASIC will be responsible for supervising the new mandatory climate reporting regime. So, what does this mean for companies preparing their first mandatory climate reports?

ASIC has noted it will take a pragmatic and proportionate approach to supervision and enforcement, engaging closely with industry as it develops guidance to help entities build the capability required to meet their new reporting obligations.

With entities set to adopt mandatory climate reporting at different times (Group 1 entities being first, followed by Group 2 and then Group 3 entities), there will be a transition period during which, for some entities, climate reporting is not yet mandatory. Nevertheless, for these entities, ASIC has said it will ensure the current disclosure and governance standards are maintained, in particular, the Task Force on Climate-Related Financial Disclosure for listed entities. It will all ensure that entities comply with their existing legal obligations, which prohibit misleading and deceptive conduct.

How BDO can help

As Australia moves towards mandatory climate reporting, it’s crucial for companies to ensure their ESG claims are backed by accurate and reliable data. Now is the time for companies to review and refine their ESG disclosures, ensuring transparency and integrity. Our sustainability reporting experts work with you to review your efforts or plans and get you compliant sooner.