ASIC continues greenwashing clampdown following recent court win
The corporate regulator said it is committed to tackling misleading greenwashing claims by companies after its successful court action against Active Super.
Last week, the Federal Court found that LGSS Pty Limited, as trustee of the superannuation fund Active Super, contravened the law in connection with various misleading representations concerning its environmental, social and governance (ESG) credentials.
In a statement last week, ASIC said Active Super had claimed in its marketing that it eliminated investments that posed too great a risk to the environment and the community, including gambling, coal mining and oil tar sands.
Following the invasion of Ukraine, Active Super also made representations that Russian investments were out.
However, the Federal Court found that from 1 February 2021 to 30 June 2023, Active Super invested in various securities that it had claimed were eliminated or restricted by ESG investment screens.
These securities were held by Active Super both directly and indirectly via managed funds or ETFs.
Justice O’Callaghan rejected Active Super’s claims that an ordinary or reasonable consumer would distinguish between holding shares in a company and indirect exposures through a pooled fund.
“I am unable to accept LGSS’s contention that an ordinary and reasonable member of the relevant class would draw a distinction between holding shares in a company and indirect exposures through pooled funds,” he said.
He noted that the Impact Reports and the super fund’s website contained statements that would suggest that certain types of investments are completely excluded from the fund.
“For example, “No way” Active Super would invest members' funds in gambling, tobacco and so on, was to be read subject to a proviso that there was a way in which it would do exactly that, by investing indirectly, not directly. In my view, that distinction is one which no ordinary reasonable consumer would draw,” he said.
Justice O’Callaghan found that Active Super published representations which were misleading and deceptive in relation to exclusions applied to gambling, coal mining, Russian entities and oil tar sands investments on its website, reports and disclosure documents.
His Honour found that the use of terms such as “not invest”, “No Way” and “eliminate” was unequivocal and not the subject of any potential qualifications by LGSS’s Sustainable and Responsible Investment Policy.
ASIC deputy chair Sarah Court said the decision is a significant outcome which shows ASIC’s commitment to taking on misleading marketing and greenwashing claims made by companies in the financial services industry.
“ASIC took this case because it sends a strong message to companies making sustainable investment claims that they need to reflect their true position,” Court said.
The matter has been listed for a further hearing at which the court will consider the appropriate form of declaratory relief. The court will consider the pecuniary penalty to impose for the conduct at a later date.
Last year, ASIC said the introduction of the government’s mandatory reporting regime for climate-related disclosures will form an important “antidote” to some of the greenwashing issues the regulator is dealing with.
ASIC said it supported the government’s climate reporting and broader sustainable finance strategy including anti-greenwashing initiatives and disclosure supportive policies like ESG labelling.
“These policy initiatives will provide the ‘bright lines’ to afford greater comparability in climate-related disclosures and, over time, sustainability issues,” it said.
“To ensure your company is well placed to transition to future climate-related disclosure standards, you should be considering the potential implications of the new standards for your future disclosure requirements, especially for listed entities, large financial institutions and super funds.
“An immediate imperative is for companies to be moving now to embed the right processes, practices and governance ahead of the future reporting requirements under ISSB.”
