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In June 2022, the Australian Securities and Investments Commission (ASIC) issued guidance detailing how entities can avoid greenwashing when offering or promoting sustainability-related products. This guidance comes at a time where Environmental, Social and Governance (ESG) investments are growing at a rapid rate, with global ESG assets estimated to exceed USD$50 trillion by 2025.1 In light of the increase in investor demand for sustainability-related financial products, ASIC has issued guidance that proposes nine key questions an entity should consider to avoid misleading or deceptive greenwashing practices in offering and promoting these products.

What is greenwashing, ESG and a sustainability-related product?

The terms ‘ESG’ and ‘greenwashing’ have gained significant traction in recent years, as environmental, sustainable and social responsibility factors play an increasing role in current and prospective investors making informed investment decisions. To preface, these terms are defined as follows:


ESG is an umbrella term for environmental, social and corporate governance matters which can be used to determine an entity’s behaviour and investment strategy.


Greenwashing is ‘the practice of misrepresenting the extent to which a financial or investment strategy is environmentally friendly, sustainable or ethical’.

Sustainability-related product

A sustainability-related product is ‘a financial product where the issuer has incorporated sustainability-related considerations – such as [ESG] matters – into its investment strategies and decision making’.

Why is ASIC concerned about greenwashing?

There has been an uptick in demand for environmentally friendly, ethical and sustainable investment options in Australia. A report from the Responsible Investment Association revealed that 86% of Australians expect their superannuation or other investments to be invested responsibly and ethically.2 In response to this consumer demand, there is a growing market of funds offering investment products with ESG considerations.

However, there is a risk that entities could exploit this market interest to incorrectly represent or exaggerate their practices as environmentally friendly or sustainable, such as by labelling their products as ‘green’ or ESG-focused where this is not the case. ASIC’s concerns were expressed in the guidance by stating that greenwashing distorts relevant information an investor may require to make an informed investment decision. This undermines investor confidence in the market for sustainability-related products and poses significant risks for the greenwashing of financial products.

While ASIC’s guidance is targeted at sustainability-related products issued by funds (including responsible entities of managed funds, corporate directors of corporate investment vehicles and trustees of registrable superannuation entities), ASIC noted that the principles outlined in the guidance may apply to entities that take into account sustainability-related considerations such as companies listed on the ASX.

Current regulatory landscape on greenwashing

Misleading and deceptive statements and conduct

The act of greenwashing can amount to misleading or deceptive statements and conduct under the Australian Consumer Law (ACL). Similarly, the Corporations Act 2001 (Cth) (Corporations Act) and the Australian Securities and Investment Commission Act 2001 (ASIC Act) prohibits the making of statements or the dissemination of information that is false or misleading, or that engages in dishonest, misleading or deceptive conduct in relation to a financial product or financial service. ASIC provides an illustration of this circumstance where a company makes a statement that it will achieve net zero carbon emissions by a particular date. ASIC cautions that this may amount to a misleading representation about a future matter where the company does not have reasonable grounds for making such a statement.

ASIC’s guidance recognises the recommendations made by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) and encourages voluntary disclosure that is in accordance with this framework. Given the evolving nature of ESG and greenwashing, ASIC expects entities to stay up to date with developments in regulation and legislation.

Disclosure obligations

When preparing a Product Disclosure Statement (PDS) for a sustainability-related product, entities must comply with disclosure obligations that apply to financial products, including sustainability-related products. These obligations include:

  • section 1013D(1)(I) of the Corporations Act, which provides “where a financial product has an investment component, its issuer must include in the PDS the extent to which labour standards or environmental, social or ethical considerations are taken into account in selecting, retaining or realising an investment”;3 and
  • ASIC Regulatory Guide 65 guidelines.

Crackdown by regulators

ASIC’s guidance comes at a time of increasing focus by regulators on the issue of greenwashing and ESG. Earlier this year, the Australian Competition and Consumer Commission (ACCC) announced that one of its five 2022/23 enforcement priorities would be ESG claims and greenwashing related issues, with a focus on misleading environmental and sustainability claims.

Greenwashing and ESG is not a new concept to the ACCC. The ACCC prominently brought an action against Volkswagen AG for contravening the ACL after Volkswagen AG made false representations about its compliance with Australian diesel emissions standards. The Federal Court subsequently imposed a $125 million penalty on Volkswagen in December 2019, highlighting the high stakes of non-compliance not only in terms of pecuniary penalties but also reputational damage and consumer confidence.

The growing concern of greenwashing and ESG has been cemented in the actions taken by the Australasian Centre for Corporate Responsibility (ACCR). In August 2021, the Environmental Defenders Officer (on behalf of the ACCR) brought proceedings against Santos, one of Australia’s largest gas companies, over Santos’ claims that natural gas is ‘clean fuel’ that provides ‘clean energy’ and that it has a ‘clear and credible plan’ to achieve net zero emissions by 2040. The ACCR allege that these claims, contained in Santos’ 2020 Annual Report, constitute misleading and deceptive conduct under the Corporations Act and the Australian Consumer Law. ACCR v Santos is significant, being a world-first in challenging a company’s net zero emissions claim, as well as the first proceedings in Australia relating to alleged greenwashing in the oil and gas industry.

How to avoid greenwashing: Nine questions to consider

The guidance lists nine questions (along with explanatory examples) that entities should consider when preparing communications and disclosures about sustainability-related products. These questions are intended to facilitate ASIC’s ‘truth in promotion’ and ‘clarity in communication’ objectives.


Is your product true to label?

The sustainability-related label of a product must reflect the substance of the product itself. Entities must ensure that product labels are not misleading, particularly where the name of a product includes sustainability-related terminology, yet sustainability factors are not a fundamental and material part of the investment selection process.

ASIC provides an illustration where a sustainability-related product is labelled a ‘No Gambling Fund’, however under its terms, the product may ‘invest in companies that earn less than 30% of their total revenue from gambling activities’.


Have you used vague terminology?

Vague, unsubstantiated statements or jargon should not be used to describe sustainability-related products. Common terms such as ‘socially responsible’ or ‘ethical investing’ or ‘impact investing’ are generic and should only be used where the term is supported with a detailed explanation so that the investor can understand the meaning behind the term when deciding whether to acquire that product.


Are your headline claims potentially misleading?

ASIC notes that communications and disclosures containing a headline claim about sustainability-related matters should not be misleading and exceptions and qualifications should not be used to rectify an otherwise misleading impression.

If exceptions and qualifications are used, they should be consistent with other content in the disclosures, including any headline claims.

ASIC cautions the use of statements referring the investor to a webpage or a document (such as a PDS, prospectus or contract) to find out information as this may not correct a misleading or deceptive impression. Further, promotional material and content should not differ from information contained in any disclosure document.


Have you explained how sustainability-related factors are incorporated into investment decisions and stewardship activities?

Entities must disclose and clearly explain the methodology or policy used to inform sustainability-related considerations into investment decisions and stewardship activities. At a minimum, investors should be privy to the considerations an entity takes into account and how these are incorporated into investment activities and stewardship activities.

If a weighting system is used to evaluate sustainability-related considerations compared to other considerations and/or to prioritise certain factors over others, entities should consider providing an explanation of the weighting system including how the weighting approach is determined and applied by investment managers.


Have you explained your investment screening criteria? Are any of the screening criteria subject to any exceptions or qualifications?

ASIC warns against ‘the use of broad promotional statements to describe investment screens’. Rather, disclosures should enable investors to fully understand the product’s sustainability-related investment screening criteria.

Investors should be aware of the extent of the investment screening and whether it is limited to a certain product offering or whether it applies to the issuer as a whole. Further, where a screen is only applied to part of a portfolio, the percentage of the portfolio covered by the screen should be disclosed.


Do you have influence over the benchmark for your sustainability-related product? If you do, is your level of influence accurately described?

An entity should disclose its level of influence where it is able to affect the composition of an index against which portfolio composition is determined or performance is measured. An entity should disclose whether it has any influence over the investment screens applied in developing the index to ensure investors are not mislead regarding the entity’s involvement. For example, ASIC advises that an issuer should not state that it is passively managed when, in substance, it has a degree of active management over the investment decision-making process.


Have you explained how you use metrics related to sustainability?

ASIC sets out a list of disclosures an entity should make if it relies on sustainability-related metrics to evaluate whether a new or existing investment aligns with the entity’s investment strategy, including:

  • the extent to which the metrics are used
  • the sources of the sustainability-related metrics used
  • a description of the underlying data used to calculate the metrics and the calculation methodologies, and
  • any risks or limitations arising from an entity’s reliance on the metrics (where applicable).


Do you have reasonable grounds for a stated sustainability target? Have you explained how this target will be measured and achieved?

Where an entity has a set sustainability target, it should clearly detail:

  • what the target is
  • how and when it will meet this target
  • how it will measure its progress or milestones, and
  • any assumptions it has relied on when setting the target or calculating progress.

ASIC warns against an entity who states on its website it is committed to reaching net zero carbon emissions however fails to provide investors with information about how and when it expects to achieve this objective. ASIC confirms that this level of disclosure is not enough to provide investors with information about the issuers strategy to attain its ‘net zero’ objective.


Is it easy for investors to locate and access relevant information?

ASIC expects an entity offering a financial product to retail investors to comply with the general disclosure obligations for a PDS. It is expected that that an investor is provided with information that is clear and concise to allow investors to ‘understand the sustainability-related considerations incorporated into the product being offered’.

Information that is relevant to retail investor’s (or their adviser’s) investment decision should be easy to locate and readily available, particularly where the information is made available through the entity’s website.

ASIC notes that an entity should make a disclosure where its investing is guided by third-party frameworks (such as the UN Sustainable Development Goals or the UN Principles for Responsible Investment).

ASIC expects that information is ‘consistent across all mediums’, including regulatory documentation, voluntary disclosure frameworks or publications and social media platforms.

However, an entity should not overwhelm an investor with unnecessary information or provide significant volumes of sustainability-related information in numerous online documents as this may not be helpful for an investor deciding whether to invest in the product.

1 Bloomberg Intelligence, ‘ESG Assets Rising to $50 Trillion Will Reshape $140.5 Trillion of Global AUM by 2025, Finds Bloomberg Intelligence’ (21 July 2021)
2 Australian Securities and Investments Commission, ‘What is "greenwashing" and what are its potential threats?’ (July 2021)
3 Australian Securities and Investments Commission, 'Information Sheet 271: How to Avoid Greenwashing When Offering or Promoting Sustainability-Related Products' (14 June 2022)



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