In December 2022, Maddocks reported on the Australian Competition and Consumer Commission’s (ACCC) crackdown on ‘greenwashing’. Greenwashing is the practice of companies making false claims about the environmental, social and governance (ESG) characteristics of their products. That article can be accessed here. In [Part 2] of our review of greenwashing, we discuss the approach of another regulator, the Australian Securities and Investments Commission (ASIC).

Greenwashing in ASIC's sights

In 2021, ASIC undertook a review of the extent to which greenwashing may be evident in the funds management space. This followed on from its review of climate risk disclosures by large listed companies.

ASIC defines greenwashing as ‘the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical’. In a speech to the AICD Australian Governance Summit in March 2022, ASIC Chair Joe Longo noted that greenwashing was very much in its sights, reminding Boards of the prohibitions in the Corporations Act 2001 (Cth) on misleading and deceptive conduct and false or misleading statements in relation to financial products such as securities or interests in funds. Mr Longo encouraged Boards to be on the look out for greenwashing and to question whether their disclosures around environmental risks and opportunities or their promotion of ESG-focused investment products accurately reflect their practices in this area.

ASIC enforcement priority

In 2023, ASIC identified for the first time particular areas of enforcement focus which included greenwashing. This reflects ASIC’s concern that greenwashing claims prevent consumers from making informed investment decisions in an environment where there is a growing interest in ESG-friendly financial products and services, that greenwashing erodes investor confidence in ESG products and ultimately threatens consumer confidence in a fair and efficient financial system.

Notwithstanding this enforcement focus, greenwashing isn’t entirely new for the issuers of financial products. Section 1013D(1)(l) of the Corporations Act requires that where a financial product has an investment component, its issuer must include in the product disclosure statement the extent to which labour standards or environmental, social or ethical considerations are taken into account in selecting, retaining or realising an investment. ASIC has issued Regulatory Guide 65 Section 1013DA disclosure guidelines (RG 65) that must be complied with when a product disclosure statement makes any claim that labour standards or environmental, social or ethical considerations are taken into account in selecting, retaining or realising an investment. Failure to comply with these guidelines could result in a product disclosure statement being considered defective.

On 18 October 2022, ASIC took its first enforcement action for greenwashing by issuing 4 infringement notices against listed energy company Tlou Energy Limited (Tlou) based on concerns about sustainability-related representations which had been made to the Australian Securities Exchange (ASX) in October 2021. Tlou had made claims in two ASX announcements that:

• electricity produced by Tlou would be carbon neutral
• Tlou had environmental approval and the capability to generate certain quantities of electricity from solar power
• Tlou’s gas-to-power project would be ‘low emissions’, and
• Tlou was equally concerned with producing ‘clean energy’ through the use of renewable sources as it was with developing its gas-to-power project.^_[1]

Tlou paid $53,280 under the infringement notices. In a media release that followed the infringement notices to Tlou, ASIC Deputy Chair Sarah Court announced that ASIC was investigating a number of listed entities, super funds and managed funds in relation to their green credentials claims and that greenwashing in relation to financial products, investment strategies and sustainable finance was a key priority._[2]