In a sign of things to come, the Australian Securities and Investments Commission (ASIC) has commenced its first proceedings in respect of alleged greenwashing conduct.
ASIC defines greenwashing as "the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical".
Greenwashing is one of ASIC's 2023 enforcement priorities and the corporate regulator has taken little time in sounding a warning to the financial services industry.
ASIC has taken Mercer Superannuation (Australia) Limited (Mercer) to the Federal Court of Australia in respect of allegations Mercer made misleading statements and engaged in conduct that could mislead the public about the sustainability of some of its superannuation investment options offered on its website.
The Mercer website offers members seven 'Sustainable Plus' options, which Mercer allegedly represents exclude investments in companies involved in non-sustainable industries and products such as carbon-intensive fossil fuels, alcohol production, and gambling.
ASIC alleges these representations misled members who signed up for the Sustainable Plus options on the basis the options allegedly did include investments in industries Mercer claimed were excluded. ASIC claims the Sustainable Plus options allegedly included investments in 15 companies involved in the extraction or sale of carbon-intensive fossil fuels (e.g. AGL Energy Ltd and BHP Group Ltd), 15 companies involved in the production of alcohol (e.g. Treasury Wine Estates Ltd), and 19 companies involved in gambling (e.g. Crown Resorts Limited and Tabcorp Holdings Ltd).
ASIC's deputy chair, Sarah Court, stated the proceedings reflect the regulator's "continuing efforts to ensure sustainability-related claims made by financial institutions are accurate". 1 ASIC is seeking declarations and pecuniary penalties from the Federal Court, injunctions preventing Mercer from continuing to make any of the alleged misleading statements on its website, and orders requiring Mercer to publicise any contraventions found by the Court.
Key lessons
For the superannuation and financial services industry more generally, the proceedings sound an intention by ASIC to use its full suite of regulatory powers to enforce compliance with financial services obligations. Not only is the Mercer case the first greenwashing proceeding issued by ASIC, it is also the first time ASIC has commenced court action after legislative amendments, which were brought about by the Financial Services Royal Commission. This has enhanced the regulator's power to take action regarding a broader range of superannuation trustee conduct.
More broadly for the financial services industry, the proceeding highlights ASIC's continued focus on greenwashing conduct and its willingness to take legal action in respect of its 2023 Enforcement Priorities. As stated by Ms Court: "There is increased demand for sustainability-related financial products, and with that comes the growing risk of misleading marketing and greenwashing. If financial products make sustainable investment claims to investors and potential investors, they need to reflect the true position". 2
To proactively manage risk and ensure compliance, superannuation and financial services entities should use this moment as an opportunity to review any 'sustainable' financial products they offer to ensure the representations or claims made in respect of the products are not false, misleading, or deceptive. Scrutiny and investigation by ASIC in respect of potential greenwashing conduct and subsequent proceedings which, as Mercer is experiencing, will be run in full view of members, investors, and the general public alike.
For further information or advice in respect of financial services regulation contact Sarah Fregon or Mark Lindfield.
1 https://asic.gov.au/about-asic/news-centre/find-a-media-release/2023-releases/23-043mr-asic-launches-first-court-proceedings-alleging-greenwashing/
2 https://asic.gov.au/about-asic/news-centre/find-a-media-release/2023-releases/23-043mr-asic-launches-first-court-proceedings-alleging-greenwashing/
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