FSC argues inadvertent effects could stem from greenwashing info sheet

Policy manager at FSC, Chaneg Torres, wrote in a blog this week that the information sheet released by ASIC in June on greenwashing — which is considered the practice of misrepresenting the degree to which investment strategies or financial products are environmentally friendly, ethical or sustainable — may lead to an inadvertent change in disclosure expectations and lead to a misunderstanding of investment practices that are usually accepted by investment managers.

Mr Torres stated that the information sheet's definition of a “sustainability product” covers “all investment products and does not differentiate between ordinary funds that take ESG matters into account” part of regular risk management and maximising returns, as well as funds that endorse sustainability considerations or investments.

“Indeed, even for products that promote a particular sustainability focus, the level of disclosure that the information sheet requires around metrics and data could set a higher disclosure standard for sustainability strategies compared to other active management strategies,” Mr Torres said.

According to Mr Torres, another inadvertent change could stem from its understanding of the use of screening thresholds. Funds that make exclusion claims should clearly disclose the details of screening thresholds, according to ASIC.

“In the examples the information sheet provides examples around a ‘no gambling fund’ or a fund that states ‘we do not invest in tobacco’,” Mr Torres said.

“It applies a high threshold for a fund to be able to reasonably claim it has excluded particular investments that do not meet its sustainability goals.”

The FSC said it will engage with ASIC and policymakers to combat greenwashing and achieve consistent and accurate fund labelling and will also release its guidance on climate risk disclosure in early August 2022, which will include guidance for funds reporting climate risk, applying climate-related sustainability labels and making net-zero commitments.

ASIC previously argued that combatting greenwashing is key for ensuring the efficient functionality of financial markets for the purpose of directing demand for capital towards investments that are accurately meeting sustainability objectives.

The corporate regulator said its main aim with the information sheet was to guarantee that funds define any sustainability-related terms with full clarity as well as accurately disclose evidence and definitions to back up labels used in a way that is straightforward and easily accessible to investors.