With greenwashing fears leading to a balancing act of appropriate ESG disclosure, transparent communication is critical to avoid such allegations, according to Zenith Investment Partners.
Earlier this month, ASIC commenced its fourth civil penalty proceeding against a superannuation fund for alleged greenwashing since December 2022 as it ramps up action against misleading green credentials.
To mitigate such risks of greenwashing, there’s a growing trend of fund managers removing or drastically reducing available information on their responsible investing credentials, according to Dugald Higgins, head of responsible investment and sustainability at Zenith.
He identified two key reasons why such an approach will not help these funds in the long term.
“Firstly, the financial world is undergoing one of the biggest changes in reporting standards in over 50 years. Love them or loathe them, most jurisdictions globally are preparing to localise standards mandated by the International Sustainability Standards Board,” Higgins said.
In Australia, climate-related financial reports are set to be mandated, alongside parliament legislating the ambition to reach net zero by 2050.
In March, it announced a joint initiative with the Australian Sustainable Finance Institute (ASFI) towards a sustainable finance taxonomy to help to attract more green investment to Australia and provide a common standard for sustainable finance.
More recently, it committed $1.6 million in the 2023–24 budget to co-fund the initiative.
“Clearly, going dark on disclosures is not an option,” Higgins stated.
He noted ASIC chair Joseph Longo’s recent speech at a Committee for Economic Development of Australia (CEDA) conference on 13 June, where Longo said: “Silence from firms and failing to engage isn’t the answer.”
Higgins added that by selling a fund based on its sustainability claims and then withdrawing such evidence, clients are left in the dark.
“Clients may rely on certain claims at the time of purchase, and removing that information should raise legitimate concerns. Adopting a code of silence does a disservice to the end investor,” he continued.
Previously, the Zenith executive voiced there could “absolutely come a time” when anyone making green claims, including financial advisers, could be put under the microscope.
“Should advisers be cautious and aware about the statements they make? Absolutely, and it’s no different from what they have to do now. They have to be certain they don’t do anything that can be construed as misleading,” he told Money Management.
While no clear solution to this issue is evident, Higgins emphasised the importance of accurate and transparent communication from fund managers to their clients and regulators.
In particular, marketing communications is an area of concern. Even if a fund manager correctly worded its formal ESG disclosures, their translation into marketing materials can still run the risk of greenwashing.
In the three most recent greenwashing cases between ASIC and investment managers, there was a disconnect between the actions being taken versus how they were being articulated in marketing activity, he said.
“Firms need to ensure the right response is made, and respond with knee-jerk reactions that are unlikely to solve the problem.
“While there is a fine line between being accurate enough to be correct and being succinct enough to be understandable, the message is clear. Managers and promoters of any products featuring environmental or sustainability claims need to be prepared to defend their claims.”
