Jonathan Steffanoni

Active Super’s latest run-in with ASIC over greenwashing demonstrates that the regulator is expecting trustees to “do what they say, and say what they do” when it comes to ESG claims, legal experts said, and to think twice before making sweeping statements that they can’t necessarily fulfil.

Earlier this month, the federal court found that Active Super made several misleading claims regarding investment exclusions it applied to gambling, coal mining, Russian entities and oil tar sands investments. The significant ruling marked ASIC’s second win on the greenwashing front this year. 

The court upheld most of ASIC’s allegations, but Active Super won some small victories. For example, the court found that the $13 billion fund didn’t mislead consumers on claims about tobacco exclusions because Active invested in cigarette packaging companies, which are not technically “tobacco manufacturers”, despite ASIC trying to argue otherwise.  

Funds these days are walking a fine line between being ESG conscious and committing greenwashing, and Legal and Prudential Advisors managing partner Jonathan Steffanoni said the case showed that “absolute statements” made by funds can have high legal risks.  

“The fundamental principle, in simple terms, is that trustees need to do what they say and say what they do,” Steffanoni told Investment Magazine.  

“In this case…there were claims identified as being quite absolute or [which] used terms such as “no way”, “eliminate”, “stop investing”, “rule out” and “specifically excludes” [that were made by Active Super]. 

“It’s quite a strong language in the representations which were made, which mean that there’s not a lot of room for nuance and ambiguity as to what that might mean in technical details.” 

Consistency matters

There is also nuance in the ruling in relation to tobacco representations, as delivered by the case’s judge, Justice O’Callaghan: 

“In my view, the ordinary reasonable consumer would not regard an investment in a company that derived between 1.5 per cent and 11 per cent of their revenue from supplying packaging to tobacco companies as being a ‘tobacco company’ or a company engaged in the manufacture or production of tobacco,” the judgement read.  

“Such a consumer, in my view, if asked about it would say, ‘no, they are packaging companies’.” 

Steffanoni said there is “a degree of proportionality” in play. 

“It would be interesting to see how a court would interpret that at a different level of revenue. Would it be different at 20 per cent? Maybe not. Would it be different 40 [per cent]? Probably getting closer. There is a spectrum there,” he said. 

Having said that, Steffanoni clarified it’s still possible for those absolute statements to be correct, but trustees need to be extra careful in aligning their underlying investment practice to those statements.  

“The use of indices which classify different companies into different sub-classifications are useful, but it’s important that any representations are consistent with the wording used in those indices. Also, trustees [need to] understand the thresholds that are applied when the index owner classified the companies that’s fallen into those categories,” he said.  

ASIC has been coming in from all angles on its greenwashing crackdown and super funds now need to make their ESG communications watertight on all fronts – not just in sensitive documents like product disclosure statements. The regulator’s previous case against Vanguard Australia quoted a media release, social media posts and a presentation at a conference as cases of false or misleading representations. 

Steffanoni said the riskiest area, in his view, is in the public-facing parts of trustee organisations. 

“This is possibly the biggest challenge – it could be marketing teams, social media teams, could also be executives to writing articles, or speaking at conferences as well,” he said. 

“Ensuring that those parts of the trustee that are involved in making public representations are really clear in their understanding of, in practice, how investment screening works and being quite precise in the language [is important].”

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