Greenwashing crackdown continues

ASIC issues a second fine for alleged greenwashing, as a new report finds Australia is lagging behind in ESG transparency.

The Australian branch of global investment management company Vanguard will pay almost $40,000 for alleged greenwashing, after being fined by the Australian Securities and Investments Commission (ASIC).

The national corporate regulator handed down three infringement notices to the company last week, which related to product disclosure statements that “may have been liable to mislead” investors.

It follows ASIC’s first action against greenwashing in October, fining Tlou Energy for alleged false sustainability-focused statements made to the ASX in 2021.

More than being green

Addressing greenwashing is a current enforcement priority of the corporate regulator, which defines the practice as “misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical”.

See more: Definitions of ESG products and investments should be legislated

Specifically, ASIC was concerned that the Vanguard International Shares Select Exclusions Index Funds claimed to prevent investment in companies involved in tobacco sales. But while the funds excluded makers of cigarettes and other tobacco products, it failed to exclude companies involved in the sale of tobacco products.

“Greenwashing is not limited to environmental claims but extends to misleading ethical propositions,” said ASIC’s deputy chair Sarah Court.

“Entities which seek to promote ethical investing must ensure their statements are accurate and able to be substantiated.

“Investors can feel strongly about not investing in tobacco production, manufacturing and sales, and where tobacco-exclusion investments are promoted, the entity making those claims must be able to substantiate the full exclusion of those investments.”

See more: ASIC releases greenwashing guide

Vanguard self-reported the error to ASIC, which it said was “inadvertent” and “promptly addressed”, according to the Financial Standard. There was no adverse financial impact on investors as a result of the error.

The company fully cooperated with the regulator, paying $39,960 in compliance with the infringement notices on 1 December 2022, which ASIC notes is not an admission of guilt or liability.

Harsh reality for ESG in Australia

ASIC’s second greenwashing infringement notice comes as a new report finds Australian companies are falling behind in transparent ESG reporting, increasing the risk of greenwashing practices.

The 2022 Global ESG Monitor report found that Australian companies particularly lagged on disclosures about natural resources being used in or affected by business activities, and that the ASX 50 has the lowest percentage of companies reporting sustainability-focused performance targets.

Australian companies scored 53 out of 100 points, based on a model that considers transparency in terms of balance, comparability, accuracy, timeliness, reliability and relevance across environmental, social and governance topics.

Top-ranked Australian companies include Endeavour, Newcrest Mining, ANZ, QBE Insurance and Woodside Petroleum.

While few corporations neared the maximum 100 points, Europe was the best performing region, scoring an average of 66 and setting the pace globally on ESG transparency. Companies in Asia and USA were comparative to Australia, scoring 56 and 53 respectively.

See more: Wave of collaboration across investors driving ESG change

A key challenge for many businesses is the lack of a uniform and internationally recognised standard for ESG reporting, which is critical in addressing the wide differences between regions.

Mark Paterson, principal of Currie Communications – a corporate sustainability specialist and B Corp that is the Australian partner of the report – said that while companies are focusing more on sustainability, there is room for improvement.

“Transparency in ESG reporting allows people to make better decisions about investing in or otherwise supporting businesses. It enables them to ask tougher questions,” he said.

“Progress is being made, but the bottom line is that many large companies continue to fall short in their ESG reporting which will not go unnoticed by investors and the public.

“The Global ESG Monitor is a beacon in the smog of ESG reporting. It highlights where disclosures are lacking, and it challenges overstated positives. It is an antidote for greenwash.”

The 2022 Global ESG Monitor report assesses the largest companies on four major stock exchanges, including the ASX 50, and identifies trends in the transparency of non-financial information included in reports published in the latest reporting period.