While Australian super funds have been active in pressuring companies about their green credentials, they are now coming under pressure themselves from regulators.
Funds face increasing scrutiny from the Australian Securities and Investments Commission (ASIC) on any green credentials they have used to market their funds, with well respected players such as Vanguard, Mercer and Active Super* now under the uncomfortable spotlight of court action.
The corporate regulator has taken court action against them and has been warning others that it is going through websites and statements for instances where the investments they hold don’t meet the marketing stances.
At the same time the bigger super funds are facing the prospect of mandatory climate change reporting which could start as early as July next year.
Exactly how extensive mandatory reporting will be, and which big companies and funds will be required to report first, is still being decided by the Federal Government.
Expectations are that mandatory reporting will be phased in, starting with big ASX-listed companies and potentially the larger super funds.
The government could decide to hold off super funds in the first phase – but the funds know they are on notice.
In short, while super funds have been the ones pressuring the companies they are investing in to step up their green credentials – one of the most high profile being last year’s push by health industry super fund HESTA on electricity company AGL to step up its exit from coal fire power, backing Atlassian co-founder Michael Cannon-Brookes – the spotlight has been turned on the funds themselves as the supplier of major players in the financial system, and many are finding themselves uncomfortable in the glare.
ASIC has elevated its crackdown on “greenwashing” to a strategic priority getting extra funding in the last Budget to step up its scrutiny of the green claims of companies and funds.
The moves have been embarrassing for the super funds targeted so far.
In the latest action, ASIC has begun civil penalties in the Federal Court against Active Super, alleging misleading conduct and misrepresentations to the market relating to claims it was an ethical and responsible superannuation fund.
The specific action taken is a clear warning to other funds who are on notice to comb through all their marketing documents.
ASIC says Active “represented on their website that they eliminated investments that posed too great a risk to the environment and the community, including tobacco manufacturing, oil tar sands and gambling” and that they had added Russia to their list of excluded countries, following the invasion of Ukraine.
Yet ASIC has been able to argue that the fund’s holdings included gambling companies Skycity Entertainment, PointsBet, The Star Entertainment, The Lottery Corporation and Tabcorp Holdings Limited; tobacco-packaging company Amcor; Russian entities Gazprom and Rosneft Oil Company; oil tar sand company, ConocoPhillips; and coal mining companies Coronado Global Resources, New Hope and Whitehaven Coal Limited.
With many super funds, particularly the smaller ones, having their investments managed externally, ASIC’s new tougher scrutiny could catch some unsuspecting funds out.
ASIC’s work is also being assisted by activist organisations such as Market Forces which are also scrutinising the investments of funds in carbon emitters.
ASIC deputy chair Sarah Court points out that its actions are being taken under the existing laws against false and misleading statements and are not part of any new laws, so there is little sympathy with offenders.
In a recent appearance at a conference on climate change governance hosted by the Australian Institute of Company Directors, she rejected concerns that ASIC’s crackdowns on greenwashing could lead to “green hushing” where companies and funds were afraid to talk about their green credentials for fear of being sued if they accidentally made mistaken claims.
She argued that it was good that they were being put under pressure to take a closer look at whether their claims could be backed up by facts and were not just making glib marketing statements.
Court’s other comments may have been a wake up call for funds when she signalled that ASIC’s new spotlight was now including the commitments to move towards net zero carbon emissions.
Most super funds have made commitments towards the net zero by 2050 goal with many committing to shorter term goals by 2030.
But as Court said, ASIC is now going to take a look at where funds could show they were taking the action needed to get there.
Vague promises about getting to net zero could now risk action by ASIC.
As Court explained, ASIC was not going to employ scientific experts to make decisions on whether a fund or a company could achieve its targets, but it is going to start checking to see if they have concrete plans to achieve their goals.
“How do you verify it? How do you substantiate it?”
“We are not, at ASIC, going to be looking at a plan and having a battle of the experts to decide (if it will actually get to net zero.)
“What we are asking companies to do is to substantiate that claim.
“Where is the transition planning? Where is the investment so that, at a high level, you are doing something to get to this target and it is not a glib marketing statement.”
Court also gave some insights into how ASIC was gearing up for having to police mandatory climate reporting when it comes.
Suddenly 2030 doesn’t look like it’s all that far away.
*This article was edited on 12 September 2023 to correct Aspire to Active Super in the second paragraph.