Regulatory risk is set to grow

December 2023 was a landmark month for greenwashing enforcement in Australia, with Mercer paying a reported $11.3m penalty under an agreement with ASIC, following allegations that the company had misled super members about the sustainability of its investments¹. ASIC has also launched enforcement actions against Vanguard and Active Super for alleged misrepresentations in disclosure documents, website content and social posts². And both ASIC and the ACCC have announced that greenwashing will be an enforcement priority into the future³.

The risk has become so serious it may even be discouraging some providers from issuing new sustainable investment products. When we recently helped the Responsible Investment Association Australasia (RIAA) with their 2023 Benchmark Report, we were interested to discover that 62% of the investment managers they surveyed saw concerns about greenwashing as a deterrent to responsible investment growth, making them the second most cited barrier after performance⁴.

Yet demand for sustainable products is also growing

At the same time, there is increasing evidence that investor and consumer appetite for green and sustainable products is strong and growing. In 2023, we also supported the ASX with the development of their flagship Australia Investor Report. It found that almost a third of current investors are already following responsible investing principles, while another third would consider ESG principles if they could be confident returns were comparable to other investments⁵. Similarly, a recent survey by Lonergan Research for Mastercard found that 48% of Australian consumers said they would actively avoid buying from businesses that did not source products sustainably⁶.

Strong sustainability credentials are also increasingly important for employers seeking to attract and retain skilled people, at a time when competition for talent is intense. The same Mastercard survey found that 43% of jobseekers said they would not work for an employer who did not have an active sustainability plan in place.

Staying greenwash-free

Importantly, the examples above show it isn’t enough to just have detailed and accurate PDSs and regulatory documents in place. Every statement about your sustainability credentials needs to be carefully formulated and supported – from digital copy to social posts. Yet it’s also important to take an active part in the sustainability conversation, or risk losing out to your more vocal peers.

Here are five steps to help you make your voice heard, while staying greenwash-free:

1. Identify areas where your business has taken real, measurable action. For example, has your business chosen green electricity or improved energy and water use at its premises, upgraded its fleet to electric vehicles, or helped finance your customers’ sustainable initiatives? If you are an investment manager, do your products use negative or norm-based screening, even if they aren’t overtly identified as sustainable investment options? Share the good news with your customers.
2. Follow the guidelines. For financial services companies, ASIC Information Sheet 271 is the bible for responsibly promoting sustainability-related products. And all businesses need to be familiar with the ACCC’s guide to Making Environmental Claims, which sets out eight core principles for telling your sustainability story without greeenwashing.
3. Speak accurately and with clarity. Avoid vague terminology and broad headlines that could leave a misleading impression and can’t be supported by evidence. Instead, take the time to explain your terms and any limitations or qualifications (such as funds that limit fossil fuel investments to a specific ceiling, rather than excluding them entirely). The standardised definitions from the Principles for Responsible Investment can be a big help here.
4. Be upfront about your sustainability journey. Be honest about where your business has more work to do on its sustainability performance. While consumers and investors want to see you are taking action on sustainability, they are likely to be understanding if you acknowledge there is more to be done, especially if you have a credible plan in place. Research also shows that consumers are particularly unforgiving of businesses who they see as guilty of “corporate hypocrisy”, and that respected brands can sustain more damage from concealing bad news and making hollow claims than their less respected peers7.
5. Get expert support. Being compliant doesn’t have to mean being legalistic, beige or uninspiring. Because we have an intimate understanding of both your industry and the greenwashing guidelines, we can help you tell your story in a compelling and effective way, with honesty, clarity and authenticity.