Two developments in Australia highlight the ongoing focus by regulators overseas on greenwashing, with lessons for New Zealand businesses.
First, the Australian Securities and Investments Commission (ASIC) has begun first-of-its-kind court proceedings against Mercer Superannuation (Australia) Limited (Mercer) for alleged greenwashing in relation to superannuation investment products. ASIC has said the case reflects its continuing focus on ensuring sustainability-related claims made by financial institutions are accurate. In addition, the Australian Competition and Consumer Commission has announced that it will be investigating a number of businesses, following an internet sweep which found that more than half of the reviewed businesses "made concerning claims about their environmental or sustainability practices.
In the New Zealand financial markets context, the Financial Markets Authority 2013 (FMA) has signaled a similar focus. This has been reflected in:
its 2020 guidance note on disclosure for integrated financial products, which sets out the FMA's expectations for the types of disclosure that it expects from issuers of financial products that incorporate non-financial factors (including ESG factors); and
its July 2022 review of integrated financial products in the managed funds context, which fell short of finding instances of greenwashing but did identify "weaknesses in information disclosure".
In addition, the FMA's focus in this area will be reinforced by the commencement of New Zealand's mandatory climate-related reporting regime, under which many New Zealand businesses will need to report on their climate-related risks and opportunities during the course of next year (see our latest update on the regime here). The FMA is the regulator responsible for that regime and, while it has indicated that it will focus in the near-term on supporting reporting entities and encouraging good practice, it will also pursue enforcement in cases of serious misconduct (eg false/misleading statements).
New Zealand's consumer law regulator, the Commerce Commission, is also focused on greenwashing, following the release of its environmental claims guidelines in 2020 (see our previous update here). Between January 2018 and August 2022, the Commerce Commission received close to 200 complaints about alleged greenwashing, and while no further action has been taken in relation to many of those claims, in some instances, the Commerce Commission has taken further steps such as engaging with businesses about how better to comply with the law or issuing warning letters. For example, in September of last year, the Commerce Commission issued a warning letter to a cardboard packaging company in relation to claims that its products were recyclable.
Given the similar regulatory approach, the developments in Australia are worth noting for New Zealand financial services providers and other businesses. Get in touch with one of our experts if you'd like to discuss the developments or their relevance for your business further.
ASIC claim against Mercer
What's the case about?
According to ASIC, the claim centers on allegedly misleading claims on Mercer's website regarding the sustainable nature of seven superannuation investment options.
Mercer offers Sustainable Plus Investment Options for "members that are deeply committed to sustainability" as a part of the investment options, which allow members to choose assets and companies to invest in. Mercer stated that these Sustainable Plus options targeted systemic issues like climate change and sustainable development by excluding investment options in companies that were involved in carbon intensive fossil fuels, alcohol production, and gambling.
ASIC alleges that, despite the representations made, members who took up the Sustainable Plus options had investments in supposedly excluded industries, including numerous companies involved in fossil fuels, alcohol, and gambling.
What is ASIC claiming?
ASIC claims that the alleged conduct amounted to conduct that is false and could mislead the public. Its claim is, accordingly, based on provisions similar to those in the "Fair Dealing" provisions in Part 2 of the Financial Markets Conduct Act. ASIC Deputy Chair Sarah Court said "if financial products make sustainable investment claims to investors and potential investors, they need to reflect the true position. If investments in certain industries like fossil fuels are said to be excluded, this promise must be upheld."
ASIC has filed proceedings in the Federal Court and seeks declarations and pecuniary penalties, along with injunctions preventing Mercer from continuing to make the relevant statements.
ACCC investigation into online greenwashing
The ACCC's announcement that it will be investigating a number of businesses in relation to greenwashing concerns follows an internet sweep project, in which it reviewed 247 businesses. Of those, 57% were found to have made concerning claims about their environmental credentials. In particular, the cosmetics, clothing, and food and beverages sector had the highest level of concerning claims. Key issues identified in the sweep were businesses:
making vague or unclear environmental claim (such as labelling products as "green" and failing to explain what was meant by the term used);
failing to provide sufficient evidence for their claims;
failing to have in place clear plans for setting environmental goals (see our earlier update here for recent developments in relation to greenwashing in the context of net zero pledges); and
using third-party certifications and symbols in a confusing way.
In commenting on its decision to undertake further investigation, the ACCC emphasized that businesses using broad claims such as "environmentally friendly", "green" or "sustainable" need to substantiate these claims with appropriate evidence (such as reliable scientific reports).
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