Don’t Risk It: Australia’s ESG Regulations Are Here to Stay

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The legal proceedings against Mercer Superannuation for supposed “greenwashing” in Australia have highlighted the limited visibility and possible drawbacks waiting for investors who prioritise sustainability.

The Australian Securities and Investment Commission (ASIC) filed civil penalty proceedings against Mercer, alleging it included “misleading statements” on its website regarding seven Sustainable Plus investment options.

The ASIC has disclosed that while Sustainable Plus options purported to exclude any investment in companies with carbon-intensive operations, alcohol production, or gambling – it had investments in Whitehaven Coal, BHP, Tabcorp & Crown Resort Ltd., Heineken, and Treasury Wine Estates.

ASIC Deputy Chair Sarah Court emphasises the significance of this first-of-its-kind case in ensuring that sustainability claims made by financial institutions are truthful. 

“Investing sustainably is an important factor for investors when making decisions, and they should be confident that what they are investing in is sustainable,” she said.

Morningstar ESG analyst Erica Hall believes investors can discern greenwashing from companies with concrete Environmental, Social, and Governance (ESG) commitments by taking specific steps. 

Hall applauds Australia’s watchdog for being a leader in combatting greenwashing, which could leave investors with a misallocation of capital or unknown risks.

If you’re investing in something purporting to be green, then you want to have the confidence that it is delivering to those claims,” Hall says.

Hall’s case exposes a more significant issue of monetary transparency and responsibility in Australia, leaving investors unaware of their precise holdings. Unlike other developed nations, managed funds in Australia aren’t obligated to reveal what’s inside the portfolio to customers or shareholders.

The absence of regulations has put Australia far behind the rest of the global investing community, as reported by Hall. This lack of transparency in Australian investment funds was illuminated during the Ukraine war and left ESG investors unsure whether their portfolios contained Russian assets.

It is absurd that in a highly developed, global market such as Australia – which has access to vast amounts of data- we are not sharing this information with the final investor,” Hall said. 

To date, ASIC has imposed fines of over $140,000 on Diversa Trustees and Black Mountain Energy for alleged greenwashing violations. It is the latest example of their commitment to ensuring companies are transparent with their environmental impact claims.

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