Improved ESG labelling on the horizon to beat adviser confusion
The government has opened a consultation and is seeking feedback on sustainable investment product labelling.
The consultation, put forward by Treasurer Jim Chalmers and Assistant Treasurer Daniel Mulino, is seeking feedback from investors and companies on sustainable investing and how funds in this category are labelled.
This will help investors to have confidence in the claims made by product issuers and ensure they can confidently compare.
The Sustainable Investment Product Labels paper covers:
- Policy options for a possible sustainable financial product labelling framework.
- Current regulation and disclosure requirements for financial products.
- Overseas frameworks.
- Design options for a framework.
- The investment approaches that should be considered “sustainable”.
- The evidence required to substantiate a label.
- The circumstances in which a product issuer could choose or would be required to use a product label.
Chalmers said: “These labels will help investors and consumers identify, compare, and make informed decisions about sustainable investment products to understand what ‘sustainable’, ‘green’ or similar words mean when they’re applied to financial products.
“A more robust and clear product labelling framework will help investors and consumers invest in sustainable products with confidence and help tackle greenwashing.”
The move has been driven by feedback that various sustainable, impact, ESG, green, ethical and responsible products are hard to distinguish and benchmark as varying descriptions exist, which has subsequently led to allegations of greenwashing or greenhushing.
Mercer, Vanguard Investments Australia, and Active Super have all been caught up in regulatory action enforcing this area, and ASIC has stated it is a regulatory priority in the coming year.
A Responsible Investment Association Australasia (RIAA) research in 2024 discovered that 88 per cent of Australians expect their investments to be responsible and ethical, up from 83 per cent in 2022. Meanwhile, Morningstar data for the first quarter of 2025 showed Australian and New Zealand investors poured US$305 million ($468 million) into sustainable funds, while the total ANZ sustainable fund universe totalled US$31 billion in funds under management.
Nevertheless, confusion exists when it comes to selecting the right product for their clients’ needs, and some fund managers have paused launches of these products or changed the names of existing funds amid greenwashing fears.
The Treasury paper stated: “Product issuers use a variety of sustainable investment strategies. This diversity of practice can make it difficult for investors to understand whether or how different products meet their investment objectives. Existing financial product disclosure obligations do not support simple comparisons of the sustainability characteristics of financial products.
“Investors typically do not have the skills, resources or time to independently verify sustainability claims made by product issuers.”
For example, it referenced measures taken in the UK around product labelling which classes the funds by sustainability focus, sustainability improvers, sustainability impact, and sustainability mixed goals, and have strict rules around naming and marketing.
This phase of consultation will run from 18 July to 29 August, and a detailed design proposal is planned for late 2025.
Commenting on the paper's launch, the Financial Services Council said: “Product labelling is an important component of the Treasurer Jim Chalmers’s Sustainable Finance Roadmap that will offer consumers greater clarity to make informed decisions on investing in products that align with their values and preferences.
“It will also help to prevent hashtag greenwashing and give issuers of financial products more certainty to develop and promote sustainable and responsible investment products and increased confidence to make sustainability claims.“
The topic of product labelling was previously brought up by Nanuk Asset Management’s BDM, Mark Jordan, on an IMAP webinar earlier this year, who stated the use of the term has caused confusion among investors.
“The argument here is not against ESG practices, but against using the term to describe a range of different investing approaches. We think it’s caused confusion and misunderstanding when clients or advisers are looking at different investment options that align with objectives.
“We’ve seen this problem arise over the past few years and it’s caused some investors or advisers to shy away completely from the responsible or ESG investment sector.”
AUTHOR
Laura Dew
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