Greenwashing: ASIC reports on greenwashing interventions 2023 - 2024

Conduct of concern

The Report outlines that through its greenwashing interventions ASIC has identified four broad areas of concern:

1. underlying investments that are inconsistent with disclosed ESG investment screens and investment policies;
2. sustainability-related claims made without reasonable grounds;
3. insufficient disclosure on the scope of ESG investment screens and investment methodologies; and
4. sustainability-related claims made without sufficient detail.

ASIC’s Report includes a summary of the surveillance work it has undertaken, its key recommendations, and best practice for avoiding greenwashing. The Report states that ASIC expects ASX listed corporations, asset managers and entities operating in the managed funds or superannuation sector to carefully consider the findings in the Report and ASIC’s recommendations.

ASIC’s recommendations include:

1. Entities making voluntary climate-related disclosures regarding metrics or targets should have regard to the Australian Sustainability Reporting Standards (ASRS), once published;
2. Ensure that independent reviews to verify investments by managers or sub-managers align with the claims made about the funds’ sustainable strategies;
3. Consider whether existing risk and compliance frameworks adequately manage the specific risk and compliance challenges arising from sustainability strategies; and
4. Ensure clear and sufficiently detailed explanations of investment screens or exclusions as well as any sustainability-linked intended investments and projects.

Where to next?

We expect liability risks to broaden when the proposed mandatory disclosure obligations are introduced.² These changes will require all companies that meet prescribed size thresholds or have existing emissions reporting obligations to make disclosures by way of an annual sustainability report. A three-year litigation hold for private proceedings is expected but will not prevent ASIC from commencing proceedings, although ASIC has indicated it will take a proportionate approach to enforcement.

ASIC expects boards to engage directly on sustainability claims, including companies’ aspirational statements, targets, active stewardship commitments or investment descriptions.³ ASIC has indicated that future proceedings may move beyond misleading or deceptive conduct to target licence obligations, and director and officer duties.⁴

Boards must take steps now to ensure they have the proper infrastructure and systems in place to ensure they are in a position to report under the mandatory reporting regime. ASIC’s success in its greenwashing proceedings also highlights the critical importance of proper internal marketing controls and risk management policies for companies who expect to make claims about their ESG credentials.

This is an area rife for continuing regulatory and third-party scrutiny, and if the proceedings that have been commenced and won by both ASIC and ACCC are any example, a decision to make an environmental or sustainability claim must be properly and thoroughly vetted before being published.

Practical mitigation strategies aligned with ASIC’s recommendations

If your company makes representations concerning sustainability, climate or governance, whether through marketing material (websites, social media or direct marketing) or financial disclosure documents, you should consider the following:

1. Do you have mandatory policies and procedures, such as marketing checklists, in place to review new and existing external representations concerning sustainability, climate or governance to ensure that they are accurate, can be objectively verified and are sufficiently qualified?
2. Are your policies and procedures regularly reviewed and independently tested to ensure appropriate oversight and supervision of the making of these types of claims, and to ensure they are up to date with the latest legal developments?
3. Are the individuals responsible for implementation of the policy appropriately trained on the risks associated with greenwashing and the measures to mitigate risk (this ought to include adequate training for the board)?
4. If you will be required to report under the incoming mandatory climate-related disclosure laws, do you have systems and processes in place to ensure that you will be able to report accurately and with the degree of detail required?
5. Do you have processes for ensuring that representations provided to you by third parties are appropriately vetted for accuracy?

To read more about Australia’s oncoming climate-related financial disclosure regime, please see: A legal primer to preparing for Australia’s climate-related financial disclosure regime | Global law firm | Norton Rose Fulbright