Jennifer Balding, Senior Manager, Investigation and Enforcement for the Australian Securities and Investments Commission, addressed the Australia Institute’s Climate Integrity Summit on 20 March 2024.

Thank you Liz, and thank you also to the Australia Institute for the opportunity to present to you all here today.

I’m really pleased to be here to highlight how ASIC is targeting greenwashing, including by taking enforcement action and promoting transparency in financial markets to support the growing interest in environmental, social, and governance investment which is required to decarbonise our economy.

So what I’m going to cover today is firstly explain the concept of greenwashing.

We’ve heard a little bit about what that is. I’m going to explain that in the ASIC context – why greenwashing is a concern for financial markets, consumers, and investors.

I’m going to refer to a publication ASIC issued a while ago called How to Avoid Greenwashing.

I’m also going to give you an overview of a report we recently issued about ASIC’s greenwashing interventions and I’ve got a couple of case studies so that you can actually see the type of greenwashing conduct that ASIC has been targeting through its enforcement action.

So as you probably all know, ASIC is Australia’s financial markets conduct regulator, and targeting greenwashing conduct falls under the umbrella of ASIC’s, sustainable finance strategic priority. And taking enforcement action in relation to greenwashing is a critical focus of that strategic priority.

Greenwashing in the ASIC context

Well, we’ve defined it in our info sheet, which I’ll come to shortly, as the practice of misrepresenting the extent to which a financial product or an investment strategy is environmentally friendly, sustainable, or ethical.

And so why is this a concern? Why is greenwashing a concern in financial markets? Well, as you can see from the slide there, there’s been a really significant increase in both the demand for and the growth in ESG investments.

Currently, the overwhelming majority of global GDP, 90% by the latest estimates, is actually now covered by a net-zero target at or around mid-this century.

61% of the ASX 200 have set targets to transition to net zero emissions and this represents nearly 80% of the total market cap of the ASX200

ASIC has also identified a very significant uptick in the number of listed companies that are now making price-sensitive ASX announcements that either reference net-zero or carbon-neutral.

And that’s been an increase of 840% in recent years.

So this growing interest in ESG – in issues – is driving the biggest change to financial markets and financial reporting and disclosure standards we’ve actually seen in a generation, and this is a really transformational issue for global markets and we’ve got to make sure that we are ready to meet the challenge of that change at every step of its development.

So it’s imperative that through the period of change we maintain high levels of governance and disclosure.

And so that requires good quality information, reliable information, which is essential to market integrity and confident and informed decision-making by investors. It’s also going to help attract the capital that is required to decarbonise the economy.

So that’s why ASIC is supportive of the introduction of the mandatory climate-related financial disclosure requirement regime that’s coming into effect later this year.

We’re confident that this regime is going to improve transparency and provide the information architecture to support the growth in sustainability-related products and services and actually facilitate the efficient allocation of capital.

However, greenwashing erodes the trust in the market and it can lead to the misallocation of capital, which is why ASIC has been focusing its enforcement action on preventing greenwashing.

Avoiding greenwashing

So, let’s look at info sheet 271: How can entities avoid greenwashing?

Any entity that’s out in the market that’s making a sustainability-related claim in connection with the issue of a financial product should have regard to the guidance we’ve set out in our info sheet.

There’s a series of questions that we encourage entities to reflect upon, including whether they’ve been using vague terminology; are their headline claims, potentially misleading, or have they got a reasonable basis?

And this concept of reasonable basis I’ll return to in relation to one of the case studies I’m going to take you through. Is the information relating to the claim easy to locate and can investors and consumers access relevant information?

So having published the info sheet on how to avoid greenwashing, we’ve been signalling that actually targeting greenwashing conduct is a key enforcement focus and as I mentioned before, that’s absolutely essential given the enormous investor interest in sustainability-related investments and the significant increase in funds that is attracting.

We also signalled our intention to move beyond fines or just infringement notices to actually take in-court action. And we’ve done that in three cases and I’m going to come to one of those shortly so you can see what our area of focus has been.

As a way of giving some transparency around what we’ve been doing recently in the greenwashing space, we issued a report 763 titled ASIC’s Recent Greenwashing Interventions. And as that report highlights, we’ve expanded our surveillance and enforcement activities relating to greenwashing. The report highlights a number of the enforcement actions we’ve undertaken including the issue of infringement notices and also the commencement of civil penalty proceedings.

So what the report also highlights is that we’ve really been seeing four main categories of greenwashing conduct.

The first is where there have been net zero statements or targets that have been made without a reasonable basis or actually factually incorrect use of terms such as carbon neutral, clean or green that weren’t founded on reasonable grounds

The overstatement of or inconsistent application of sustainability-related investment schemes or the use of inaccurate labelling or vague terminology in sustainability-related funds.

So we’re continuing to monitor the market for misleading claims and we’ve currently got a series of inquiries and investigations underway into suspected greenwashing conduct by a range of entities. And we’re actually expecting to be taking further enforcement action shortly.

We’ve also received additional funding from the Australian Government to actually expand our greenwashing-related surveillance and enforcement activities during the financial year.

How ASIC identifies greenwashing

So I thought you might be interested in how we actually identify greenwashing conduct and that’s through a range of different avenues.

Firstly, either through a combination of complaints that we’ve received or other reports and sometimes through proactive inquiries that we have undertaken. So we actually publicly have signalled that we’re prepared to receive and we actually invite members of the community, environmental advocacy groups, and other interest groups and, other Australian regulators and government agencies to report potential greenwashing conduct to us. Some of the environmental advocacy groups have actually made the complaints they’ve made to ASIC publicly available.

Sometimes we also are alerted to greenwashing conduct by a company’s competitors who are worried quite honestly, they’re worried about being put at a competitive disadvantage because there are overstated claims as they should be.

We also become aware of greenwashing conduct through breach reporting or reportable situations. So that’s a regime that requires financial services entities to report breaches to us and some of those have actually led to our greenwashing enforcement outcomes.

We also undertake proactive work such as surveillance, and thematic reviews, and review prospectuses that have been lodged with us.

We’re increasingly doing our data analytic work to try and identify greenwashing,

But now I’m just going to turn to some of the enforcement actions that we have been taking. Now as you can see there from that series of headlines, our ASICs enforcement action has received widespread media attention both here in Australia and also overseas.

And that’s because there’s been little by way of precedent.

So this has been really great and it started to put greenwashing squarely on the map.

We’ve also commenced three civil penalty proceedings in court in February 2023.

We commenced our action against Mercer Super and I’ll come to that shortly. That’s one of the case studies. We’ve also commenced proceedings in July 2023 against Vanguard Investments and in August 2023 against Active Super. There are probably some names you’re familiar with.

We’ve also issued a series of infringement notices against a range of entities and I’m going to talk about one later this afternoon relating to Tlou Energy.

Greenwashing case studies

Okay, so just going to turn to one of the two case studies that I’m going to walk you through.

This relates to the first action that we brought in court against Mercer superannuation. We filed in February, 2023. And these are the civil penalty proceedings we’ve commenced. This was a significant milestone for ASIC and as I mentioned earlier, we’ve done it in two other cases as well.

So just in broad terms, Mercer – it’s probably a name you are many of you familiar with – operates a large super fund that offered various sustainable plus investment options. At the time that those options existed, they had 170 million in funds under management and just over 3000 members.

ASIC’s allegation is that the marketing material that Mercer promoted the fund with included statements that these various sustainable investment options would not invest in alcohol gambling and carbon-intensive fossil fuels such as thermal coal.

So ASIC is alleging that various of the sustainable plus investment options actually had, contrary to the marketing holdings in nearly 15 companies that should have been excluded, and that included AGL, BHP, Glencore, and Whitehaven.

We’re actually seeking declarations that Mercer contravened the law. We’re seeking pecuniary penalties and we’re seeking adverse publicity orders.

So the matter was actually heard by the court in December 2023 and we’re awaiting the court’s judgement.

And that will obviously be made public when that’s released.

This was the first greenwashing enforcement outcome and I can very proudly say that this was a matter that my team led. So just very quickly, Tlou Energy is an energy company listed on the ASX here in Australia and it’s involved in natural gas production in Botswana to generate electricity.

In October 2021 it made a series of sustainability-related statements about its operation in three areas. The first about its carbon neutral status, the second about solar power on the third about being low emissions and clean energy.

So the carbon neutral representations were that the electricity that was generated at its power station would be carbon neutral and that they had plans to achieve that carbon neutrality through carbon sequestration.

On the solar power representations, Tlou had represented that they had environmental approval and the capability to generate certain quantities of electricity from solar power.

And the clean energy low emissions representation was that it was equally concerned with producing clean energy through the use of renewable sources as it was developing its gas-to-power project.

On 25 October 2022, Tlou paid four infringement notices that ASIC issued and ASIC had issued those because it was actually concerned that those representations were false and misleading.

And that’s because, in relation to the carbon neutral representations, we had concerns that it actually hadn’t in fact undertaken any substantive modelling of the carbon dioxide emissions that were to be offset.

And they hadn’t actually undertaken any studies as to whether it’d be feasible to use carbon sequestration to offset the emissions.

In relation to the solar representations, we were concerned that they didn’t have the relevant environmental approval to actually construct a solar farm that was going to generate the represented quantity of electricity and the low emissions and clean energy representations.

We were concerned that the primary asset was predominantly a fossil fuel project and any plans to develop clean energy were only really at a very early stage and they hadn’t even undertaken a greenhouse gas assessment of the emissions that were going to be generated.

And so we were concerned that they didn’t have a reasonable basis to assert that their gas-to-power project would actually be lower emissions.

So I mentioned this was ASIC’s first greenwashing outcome. There was widespread media. This was probably the first greenwashing enforcement action, certainly, it was the first here in Australia, but internationally and something that I’m obviously very personally proud of and so is my team.

So ASIC is continuing to prioritise and target greenwashing conduct.

You can expect to see more enforcement outcomes being made public shortly.

So thank you very much.