The UN-backed Principles for Responsible Investment (PRI) says Australian regulators such as ASIC are not having enough dialogue with the private sector even as they go about a greenwashing crackdown.
While supervision around responsible investing is welcome to keep the market in check, PRI chief sustainable systems officer Nathan Fabian said Australia’s current approach lacks some nuance compared to global peers.
Many of the nation’s super funds are PRI signatories and have committed to its set of responsible investing standards, including practising active ownership and encouraging appropriate ESG disclosures internally and in companies they invest in.
But the funds have been highly cautious around promoting their products with ESG claims in the past 18 months, as ASIC significantly ramped up its scrutiny around greenwashing activities and scored its first court win, against Vanguard earlier this year.
In a speech to the Responsible Investment Association Australasia (RIAA) conference on Thursday, ASIC chair Joe Longo said the enforcement focus on greenwashing was a “proportionate regulatory response”.
“ASIC’s greenwashing interventions are founded on enforcing what are long-standing and well-established legal obligations – that is, the obligations that prohibit misleading and deceptive conduct,” he told the conference.
However, in an interview with Investment Magazine earlier this month, PRI’s Fabian acknowledged that while supervision and penalties are important to promote good practices, they “can’t be the only thing that’s happening”.
“I think ASIC’s participatory role is welcome, but we would ask them to consider the intention [from investors],” said Fabian, who is Australian but now based in London.
“A lot of the claims and statements of ambition that were made by asset owners say ‘we want to play our role in the economic transition, so we’re going to incorporate net zero goals or climate benefits into our investment process’ – and that was the intention,” he said.
“Let’s face it, there’s some uncertainty around how economies and how the climate is going to adjust because of [global] warming. I think that leads to some lack of definitive clarity.
“But investors were signalling that they’re taking it [the economic transition] seriously, and they’re going to try. I think that warrants some recognition by the regulators and supervisors.”
Harmonisation needed
Longo stressed in his speech that none of the greenwashing cases ASIC is pursuing is “unwarranted or marginal”.
As long as the regulated entities have shown genuine evidence to support their environmental claims, “ASIC is not in the business of pursuing entities that honestly and accurately disclose their activities”, Longo said.
Fabian expressed a similar sentiment and said investors who cannot provide concrete evidence deserve regulatory scrutiny. But he said Australian regulators also have a way to go to achieve the same depth of market understanding as their European counterparts.
This could be difficult because smaller markets simply have lower public service capacity, he said.
“There has to be some dialogue with pensions, investment managers, banks, insurers about what they’re trying to achieve when incorporating sustainability goals, how that translates into their investment approaches, and therefore what the statements about their products mean,” he said.
“There hasn’t been enough dialogue around that as far as we can tell, and if you just come in with the supervision or the penalty’s part, you’re missing some of the nuance.
“If you look at Europe and the United Kingdom, and even to some extent Japan, there were private and public expert processes set up where rules and guidance were jointly developed.
“It’s not for me to say that ASIC should do that, but that’s the piece that was done well in other markets.”
The federal government has committed to 12 priorities in its sustainable finance strategy published last year, which include developing a sustainable finance taxonomy and a framework for climate-related disclosures.
However, Fabian said significant work needs to be done on the harmonisation of international codes.
“We’ve got around 40 sustainable finance taxonomies around the world, with some level of state sponsorship,” he says.
“This is why PRI is so strongly supporting the adoption of ISSB (International Sustainability Standards Board) standards.
“The more that individual jurisdictions follow those guidelines, the more it increases the understanding that investors have globally and reduces the transaction cost to everybody.”
