Wishing or washing? Green claims under spotlight

The corporate regulator is keeping a close eye on attempts at greenwashing by investment firms amid warnings from fund managers of a looming, lesser-known issue of “greenwishing”.

Greenwashing – where companies and fund managers misrepresent how ethical or sustainable their operations or investment products are – has been a rising as investor pressure prompts operators to make commitments on their environmental credentials.

Greenwashing, where firms misrepresent how ethical or sustainable their operations are, has been a growing issue.Credit:Bloomberg

However, the issue of “greenwishing” is somewhat more obtuse. It refers to a sincere hope among investors that voluntary sustainability efforts are much closer to achieving the necessary change than they actually are.

The term serves to demonstrate the divide between the more nefarious and misleading practice of greenwashing from well-intended, yet ultimately ineffectual, action from corporates and investment firms.

Greenwashing has been in the sights of the Australian Securities and Investments Commission since the regulator announced it would start a review into the issue last July. This led to it releasing a new information sheet last month, providing guidelines to superannuation and managed funds to help them avoid potential greenwashing.

But it’s wishing, not washing, that Desiree Lucchese, head of ethics and impact at ethical investment firm UEthical, believes is a bigger issue in the investment scene.

“Greenwishing is not sufficient to demonstrate appropriate management,” Lucchese told The Age and Sydney Morning Herald. “As investors, we are entrusted to do the right thing by our clients, and this means having robust strategies backing up claims.”

“There is an intent [among fund managers] to do the right thing and to have all products considering environment, social and governance (ESG). But how are you using the terminology? Are you understanding the nuances of it?”

Nathan Parkin, investment director at Ethical Partners Asset Management.

Nathan Parkin, investment director at Ethical Partners Fund Management, agrees that funds should be more transparent about their approach to ESG investing. He says clear metrics, such as when companies include ESG measures in their executive remuneration, were important to combat any potential “greenwishing” from fund managers.

“Tying [ESG] to remuneration over a medium timeframe makes sense,” he says. “If you don’t set the ambition, and you don’t remunerate people for it, they’re less likely to solve the issues, which need to be solved in a meaningful way.”

Last year, the International Monetary Fund encouraged policymakers to make more climate data available for corporates and investment funds, including better classification systems to help standardise things such as labels and taxonomies across funds.

Both Parkin and Lucchese welcome ASIC’s recent information sheet, which makes some inroads in these areas by directing funds to clearly define the terminology they are using to describe their products, and explicitly explain how sustainability considerations are factored into their investment strategy.

However, there should be further clarity from ASIC on enforcement, Lucchese says, as clearer penalties would likely drive the market to improve its ESG credentials.

“I would encourage ASIC and the regulators to really be clear about enforcement and how we avoid recidivism. You have to have a stringent timescale of enforcement for penalties. I think that would drive the market to be a bit more precautionary and cautious about their claims,” she says.

A spokesperson for ASIC said the review conducted over the past 12 months had not uncovered any “egregious or widespread harm” from greenwashing, but noted the regulator continued to monitor the space closely.

ASIC is also working with other regulators to co-ordinate its actions on greenwashing, along with international peers, including a taskforce from the International Organisation of Securities Commissions.

For retail investors, who do not have the resources and reach of institutional funds, Lucchese advises thorough due diligence when making ESG investments, pointing to guidance from bodies such as the Responsible Investment Association of Australasia, which makes ESG fact sheets available to investors.

Last month, ASIC Commissioner Sean Hughes encouraged investors to look out for “vague or ambiguous language or exaggerated marketing claims” when trying to avoid greenwashed funds.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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