Ethical fund ‘transparency and trust paramount’

The Australian Securities and Investments (ASIC) has warned superannuation and managed funds not to make misleading statements about their claims to be investing in an environmentally responsible manner.

As ethical investing moves to the mainstream, funds that do not market themselves as investing ethically risk being snubbed, particularly by the young, for whom investing with a social conscience is important.

As the number of ethical and sustainable investment products grows, many are not as “green” or “sustainable” as they claim.Credit:Gabriele Charotte

The “greenwashing” phenomenon, where fund managers attempt to lure investors with their environmentally friendly or sustainable credentials – but where those credentials often cannot be substantiated – is something financial regulators are grappling with around the world.

Last month, German financial authorities raided the offices of Deutsche Bank and its asset management subsidiary DWS as part of a greenwashing probe. The searches related to allegations of the bank marketing investment products as more environmentally friendly than they were.

ASIC has issued an information sheet to superannuation and managed funds as it seeks to address the problem. Last year, the regulator initiated its own greenwashing probe.

‘Being true to label is not a nice-to-have, it’s a regulatory must-have. It’s also a must-have for investor confidence and trust.’

ASIC says examples of funds that are not “true to label” would be a “No Gambling Fund” that under its investment mandate could still invest in companies that earn less than 30 per cent of their revenue from gambling activities.

Another would be a “Social Investing Fund,” where social matters were not significant in the manager’s investment decisions.

Investments need to not only be true to label, but funds also need to be clearer in their disclosure documents on how sustainability considerations are being used in investment strategies, the regulator says.

“Transparency and trust are paramount, as the market for these products continues to grow and develop,” says ASIC deputy chair Karen Chester.

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

“Being ‘true to label’ is not a nice-to-have, it’s a regulatory must-have. It’s also a must-have for investor confidence and trust,” she says.

ASIC said the information sheet has been issued to help super funds and managed funds comply with their “existing regulatory obligations”, rather than new regulations. It is calling on investors to alert it if they see suspected greenwashing of financial products.

Responsible Investment Association Australasia chief executive Simon O’Connor says about 90 per cent of the investment market claims to be responsible in the way they invest, yet just 40 per cent of fund managers activate “leading practice” responsible investing programs.

Angela Ashton, founder of Evergreen Consultants, says ASIC has “put the industry on notice” that it is time for more consistency and clearer communication.

“The regulator is determined to have transparency and trust when it comes to representing the extent to which financial products or investment strategies are environmentally friendly, sustainable or ethical,” Aston says.

With investors directing more of their money into green investments, they must be provided with real, accurate information about how their money is being managed.

Products that are below best-practice in their disclosures – especially those deliberately engaging in greenwashing – have been given fair warning to clean up their act, or face the consequences.

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