Consumer trust isn’t something to be taken for granted, but reports from the UK, US and here at home are all pointing towards an uplift in trust levels around financial advice, which can only be a welcome development.
There are significant tailwinds behind the financial advice industry at the moment, but some major obstacles are still preventing advice practices from taking advantage of surging demand according to a new study from CFS.
ASIC lays down the law on ‘greenwashing’
With economies around the world all seeking to decarbonise, business has a critical role to play in the race to meeting Net Zero commitments.
The corporate sector leads the energy transition in which many have treated it as a business opportunity to move to net zero by innovating. The not quite net zeros are using this as an opportunity to greenwash.
Coined in the mid 1980’s, greenwashing, is a form of marketing spin in which green PR and green marketing are deceptively used to persuade the public that the company’s products are environmentally friendly.
Greenwashing undermines the integrity of the marketplace, the confidence in consumer goods, companies and governments and the effort of hardworking investment managers to market products that are true to their word and have strong sustainability credentials. It damages the trust the general public have in sustainability claims as a whole and creates extra hurdles in the fight against climate change.
Greenwashing is bad, and ASIC are doing something about it. The regulator has released commentary on how fund managers and super funds can avoid greenwashing. An information sheet has been produced that tells investment managers and issuers what disclosures they should be making and how to avoid misleading claims. The publication will also assist issuers to provide investors with the information they should have to make informed decisions.
Angela Ashton, Founder and Director of Evergreen Consultants, says: “The regulator is determined to have transparency and trust when it comes to representing the extent to which financial products or investment strategies are environmentally friendly, sustainable or ethical. We fully endorse that goal. “Super and managed funds are keen to present their responsible investing credentials to the market and it is a matter of concern that ASIC has found that some industry participants need to lift their game.”
Ashton says: “At the time, we noted the absence of a consistent industry approach. Now the regulator has put the industry on notice that it is time for consistency and clear communication. We will do what we can to support that development.”
ASIC’s definition of Greenwashing “Is the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical.” ASIC says Issuers need to particular attention to the following:
- use clear labels
- define the sustainability terminology they use
- clearly explain how sustainability considerations are factored into their investment strategy.
ASIC says, “Our information sheet is simply about helping issuers comply with their existing regulatory obligations. Labels or headline statements about a product’s green credentials should not be misleading. Being ‘true to label’ is not a nice-to-have, it’s a regulatory must-have. It’s also a must-have for investor confidence and trust. And a must-have for both fair and efficient market outcomes here. Misdirected investment here will inevitably be at great economic cost.”
The information sheet contains nine questions that issuers need to consider when offering of promoting sustainability-related products.
- Is your product true to label?
- Have you used vague terminology?
- Are your headline claims potentially misleading?
- Have you explained how sustainability-related factors are incorporated into investment decisions and stewardship activities?
- Have you explained your investment screening criteria? Are any of the screened criteria subject to any exceptions or qualifications?
- Do you have any influence over the benchmark index for your sustainability-related product? If you do, is your level of influence accurately described?
- Have you explained how you use metrics related to sustainability?
- Do you have reasonable grounds for a stated sustainability target? Have you explained how this target will be measured and achieved?
- Do you have reasonable grounds for a stated sustainability target? Have you explained how this target will be measured and achieved?
The key to creating true to label product marketing is to clearly explain how sustainability is factored into the product’s investment strategy. Some say the information sheet is ASIC putting the industry on notice before it introduces penalties and enforcements.
ASIC Commissioner Sean Hughes added, ‘This is and will remain a priority area of focus. ASIC is continuing to monitor the market and will be looking for misleading claims about ESG and sustainability. We are also appealing to industry and investors to alert us if you see suspected greenwashing in financial products.’
Ashton says: “Reporting standards in this area are developing quickly, which ASIC acknowledges in the information sheet when it says this is an evolving space. “Evergreen is ready to work with fund managers to keep on top of these changes.”
Issuers can download the information sheet here click here.
