ASIC recently issued a report outlining its regulatory interventions on greenwashing issues between 1 April 2023 and 30 June 2024 . The report emphasises that the quality of sustainability-related disclosures and governance practices needs to improve and identifies ASIC’s key areas of greenwashing concern. Given a similar focus from New Zealand regulators, New Zealand directors should take into account greenwashing lessons from Australia to ensure compliance and protect their organisation and themselves from regulatory action.

In light of ASIC’s proactive approach to enforcement in this area, and with mandatory climate reporting on the horizon in Australia, the Australian Institute of Company Directors (AICD) has developed a set of 10 guiding principles to help Australian directors establish strategically aligned climate targets and mitigate associated risk, such as claims of greenwashing. The guide sets out the board’s role over four ‘phases’ of the target setting process - development, implementation, communication and review, and suggests questions for directors to ask management at each stage. These principles will be of interest to New Zealand boards and climate-reporting entities. 

ASIC’s Report 

Through its greenwashing interventions, ASIC identified the following four broad areas of concern in respect of greenwashing misconduct: 

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

ASIC’s report summarises its surveillance work and provides recommendations and examples of good practice. It encourages listed entities, asset managers and entities operating in either the managed fund or superannuation fund sector to carefully consider its recommendations when making sustainability-related disclosures and/or representations about an investment product’s sustainable features. 

ASIC recommends that entities should: 

1. have regard to the Australian Sustainability Reporting Standards, once published, when making disclosures about climate-related metrics or targets. The New Zealand equivalent is the Aotearoa New Zealand Climate Standards which apply to those regulated as climate reporting entities - for more information, see our previous article; 
2. ensure that independent reviews by managers or sub-managers to verify investments align with the claims made about a fund’s sustainable strategies;
3. ensure they provide clear and sufficiently detailed explanations of investment exclusions or screens as well as any sustainability-linked intended investments and projects; and 
4. consider whether existing risk and compliance frameworks adequately manage the specific risk and compliance challenges arising from sustainability strategies. 

ASIC’s recommendations reflect ASIC’s previous guidance about how to avoid greenwashing when offering or promoting sustainability-related products and general guidance the FMA has issued in relation to the advertising of financial products. For more information about how businesses can mitigate the risk of greenwashing claims, see our previous article. 

ASIC’s ‘enforcement and regulatory update’ report, confirms misleading conduct in relation to sustainable finance, including greenwashing, remains an enforcement priority for ASIC, and it is taking a “firm stance”.^[2] It describes greenwashing as a “serious threat” to the integrity of the Australian financial system and to investor confidence, and says that the ongoing demand for sustainable products makes it essential that entities avoid misrepresenting the extent to which their products or investment strategies are environmentally friendly, sustainable, or ethical. The FMA’s update on its supervision of ethical investment disclosure, published this week, similarly confirms that the FMA will continue to monitor and supervise all market participants who make ethical and sustainability claims for their products or services to ensure compliance with the fair dealing provisions of the Financial Markets Conduct Act 2013, including that advertising is not misleading or deceptive. 

Simpson Grierson Litigation Partner, Nina Blomfield, highlights the global increase in climate-related litigation, noting that consumers, investors, and regulators are intensifying their scrutiny of climate claims, policies, and actions. For many organisations, climate-related disputes, including greenwashing allegations, now represent a real litigation risk. Although New Zealand has not yet experienced the same level of regulatory enforcement as Australia, she and Senior Associate, Alice Poole anticipate substantial growth in this area and suggest businesses carefully evaluate the basis for any sustainability claims they make.

Special Counsel Jo Lim, who advises on regulatory compliance and climate change and emissions trading issues, emphasises the importance of businesses having a solid foundation before announcing climate targets and then a robust process to keep targets under active review. Companies can face public backlash for failing to achieve advertised targets, and regulatory risk for not having a sound plan for achieving stated targets. Importantly, if it becomes clear that assumptions relied on as a basis for achieving targets no longer hold true, companies need to identify this in a timely manner and update their public claims. Jo says directors need to be confident that their company has a robust substantiation, monitoring and verification process. To mitigate reputation and regulatory risks, Jo advises boards to implement comprehensive board governance policies and procedures to enable directors to thoroughly assess potential risks and ensure that climate targets and claims are well-grounded, achievable and appropriately monitored before making public commitments.

Get in touch

If you have any questions in relation to ESG governance, risks or reporting for your business or are considering how your board and leadership team can take steps to mitigate inadvertent greenwashing, please contact one of our experts. 

Special thanks to Tawhiwhi Watson and Achi Simhony for their assistance in preparing this article.