Karen Chester (left) and Sean Hughes

The corporate regulator is encouraging investors to call out greenwashing by superannuation and managed funds amidst the release of an information sheet outlining best practice for avoiding the mislabelling of sustainable investment products.

In a media statement released on Tuesday, the regulator defined greenwashing as the practice of misrepresenting the extent a financial product or investment strategy is environmentally friendly, sustainable or ethical.

After undertaking a review of superannuation and investment products ASIC found issuers needed to use clearer labels, better define the sustainability terminology they use and clearly explain how sustainability considerations are factored into their investment strategy.

ASIC commissioner Sean Hughes said this will remain a priority area of focus for the regulator.

“ASIC is continuing to monitor the market and will be looking for misleading claims about environmental, social, governance (ESG) and sustainability. We are also appealing to industry and investors to alert us if you see suspected greenwashing in financial products.”

He urged investors to assess if their values and goals aligned with the ESG product being considered.

“In weighing up investment options that suit their values, we encourage consumers to look out for vague or ambiguous language or exaggerated marketing claims that lack a reasonable basis to support them,” Hughes said.

Growing pains

ASIC deputy chair Karen Chester said managed funds and super funds are responding to the increasing investor demand for sustainability-focused investments, which is expected to exceed US$53 trillion ($76.2 trillion) by 2025.

“Investors are not only motivated by their values here, but also by long-term financial returns. Transparency and trust are paramount as the market for these products continues to develop and grow. In our region alone, sustainability-labelled investments have more than doubled between 2019 and 2021.”

In addition to Information Sheet 271: How to avoid greenwashing when offering or promoting sustainability-related products, the regulator also released a new page on the Moneysmart website about ESG investing.

Chester said Info 271 is about helping issuers comply with their existing regulatory obligations.

“We have set out nine important questions for issuers to ask themselves. We would hope and indeed expect issuers to review their practices against our information sheet.”

Chester said labels or headline statements about a product’s green credentials should not be misleading.