The Labor government is pressing ahead with plans to introduce standardised sustainability labels for investment products including within superannuation and managed funds, in a bid to support consumer decisions and reduce potential greenwashing.
In a joint media statement with Treasurer Jim Chalmers, Minister for Financial Services Daniel Mulino announced a public consultation for the labelling framework late Friday afternoon, marking his first policy initiative since taking over the outer ministry portfolio in May.
The financial industry had hoped that the newly minted assistant Treasurer would prioritise the legacy issues left behind by his predecessor Stephen Jones – legislating the second tranche of Delivering Better Financial Outcomes reforms being the most prominent one.
But the sustainability labelling framework has also been in the works for years, initially flagged in the Treasury’s 12-point sustainable finance strategy in 2023 and developed throughout 2024.
The Treasury is seeking public feedback on the scope of product the labels should be applied to. One of the options is to give a label to all financial products because consultation so far suggests only labelling the ‘sustainable’ products would make them more expensive to manage, and investors should also know if a financial product is harming the environment.
The other option is to only label products marketed using specific words, such as ‘sustainable’, ‘ethical’ or ‘responsible’, which may make them more attractive to environmentally conscious retail investors.
“A more robust and clear product labelling framework will help investors and consumers invest in sustainable products with confidence and help tackle greenwashing,” Chalmers and Mulino said in the joint statement.
Australia’s sustainability labelling proposals came as international initiatives run into blockages. Last month, the European Commission casted doubt on the future of its Green Claims Directive, a similar anti-greenwashing law that aims to regulate the proliferation of green labels that is causing much consumer confusion.
It also requires companies to back up their environmental claims with scientific evidence.
The European People’s Party (EPP), the largest party in the European Parliament, in June formally requested that the Commission reconsider and withdraw the directive, citing the excessive compliance cost it would impose on companies, especially microenterprises. The next steps of legislation remain unclear.
There are at least 230 different sustainable labels at use in EU markets, and the directive was seeking to ban new public labelling schemes unless developed at the EU level, and private schemes will need to demonstrate “higher environmental ambition” and seek pre-approval.
The Australian government also floated the idea of adopting a “principle-based” labelling regime like in the UK, which would leave more flexibility for product issuers to come up with evidence should they need to back up their environmental claims.
The UK regime has four labels associated with various types of objectives. For example, an investment product could focus on investing in assets already environmentally or socially sustainable, or investing in assets whose environmental or social sustainability could improve over time.
However, the consultation paper acknowledges that adopting this kind of regime in Australia would likely require significant regulatory guidance.
Last month, the Australian Sustainable Finance Institute also released the Australian Sustainable Finance Taxonomy, whose development was co-funded by the government and is expected to work in tandem with the sustainability product labelling. It is a voluntary code financial institutions can adopt to make more credible sustainability claims.
The Treasury’s sustainability labelling regime is open to consultation between 18 July and 29 August.
