ASIC flags action against super funds on greenwashing

The Australian Securities and Investments Commission (ASIC) has signalled the likelihood of further action against superannuation funds over greenwashing.

The regulator has used a new report on interventions on greenwashing (Rep 791) to signal that its surveillance has pointed to shortcomings which were likely to lead to regulatory action.

It said a small number of superannuation funds held investments in companies that appeared to be breaching their own investment exclusion criteria.

“This may result in further regulatory action by ASIC,” it said.

The reference to possible further action came as ASIC outlined what it had already done in the superannuation space with respect to greenwashing concerns including commencing civil penalty proceedings against LGSS Pty Ltd (Active Super) and Vanguard Investments Australia.

ASIC noted that it had also progressed civil penalty proceedings against Mercer Superannuation (Australia) Limited which concluded with a $11.3 million penalty.

The regulator said in the report that it had conducted surveillances across key segments of the financial services industry including listed companies, responsible entities and superannuation trustees.

It said its superannuation surveillances were conducted to review sustainability and climate-related disclosures made by a sample of 20 small-to-medium superannuation funds that had not previously been involved in any ASIC sustainability-related surveillances.

“We identified areas where improved disclosure by superannuation trustees was necessary. Of the funds that made sustainability claims or used investment screens, almost all required an uplift in at least one area of their disclosure, and at least one may attract future action by ASIC,” the report said.

It said common disclosure concerns among the sample of trustees included:

› Use of vague terminology when making claims, for example, trustees made statements relating to certain kinds of investments, such as ‘we aim to avoid’, or ‘where practicable, we avoid’. We encourage trustees to use precise language and to substantiate claims with sufficient details for fund members to gauge how investment decisions are made.

› Instances where information about the nature of funds’ engagements with companies on ESG issues was spread across external webpages and the websites of other entities in the same financial group, and instances of imprecise claims around proxy voting and direct engagement practices. We encourage trustees to ensure there is easy access to relevant information and disclosures on their website to support investors’ decision making. Additionally, and as with any other claims, we expect trustees to fully substantiate claims made about proxy voting or direct engagement.

› Unsubstantiated representations or insufficient detail on investments held, including those held through externally managed investment options, a pooled fund, or both. Even when relying on external investment managers, trustees should consider the clarity and level of information provided, and clearly explain how any sustainability related representations made on their websites can be substantiated.

› Concerningly, a small number of superannuation funds held investments in companies that appeared to be breaching their own investment exclusion criteria. This may result in further regulatory action by ASIC.