ASIC continues to bring down the hammer on greenwashing, so superannuation trustees should check their disclosures now

Matthew Daley, Vanessa Pallone and Avi Kumar
02 Mar 2023
Time to read: 3.5 minutes

ASIC is looking for any statements, images, diagrams or other information in PDSs, public advertising, member communications, websites and media which contain false or misleading statements and which have no reasonable basis, including in respect to any sustainability-related claims.

The Australian Securities and Investments Commission (ASIC) has commenced civil penalty proceedings in the Federal Court against Mercer Superannuation (Australia) Limited, alleging it made misleading statements relating to the sustainable nature and characteristics of some of its superannuation investment options.

ASIC alleges Mercer made misleading statements on its website about seven "Sustainable Plus" investment options offered by the Mercer Super Trust (of which Mercer is the trustee) through the "Select-your-own" offering. The statements marketed the Sustainable Plus options as suitable for members who are "deeply committed to sustainability" as Mercer claimed the investment options excluded investment in companies involved in carbon intensive fossil fuels such as thermal coal and companies involved in activities regarded as causing social harm including alcohol production and gambling.

ASIC alleges the sustainability-related claims were misleading as the offering included investments in companies in excluded industries such as:

  • investment in 15 companies involved in the extraction or sale of carbon intensive fossil fuels (including AGL Energy Ltd, BHP Group Ltd, Glencore PLC and Whitehaven Coal Ltd);
  • investment in 15 companies involved in the product of alcohol (including Budweiser Brewing Company APAC Ltd, Carlsberg AS, Heineken Holding NV and Treasury Wine Estates Ltd); and
  • investment in 19 companies involved in gambling (including Aristocrat Leisure Limited, Caesar's Entertainment Inc, Crown Resorts Limited and Tabcorp Holdings Limited).

ASIC has previously highlighted enforcement action against greenwashing as one of its 2023 enforcement priorities. The proceedings demonstrate an escalation of ASIC's use of enforcement tools as previously ASIC has extensively utilised infringement notices and fines. As at 28 February 2023, ASIC has issued $140,000 of infringement notices to companies engaging in greenwashing conduct including Tlou Energy Limited Pty, Vanguard Investments Australia Ltd and Diversa Trustees Limited. ASIC Deputy Chair Sarah Court has said "This is the first time ASIC has taken an Australian entity to court regarding alleged greenwashing conduct, and it reflects our continuing efforts to ensure sustainability-related claims made by financial institutions are accurate." The action is also the first time ASIC has commenced court action using its enhanced range of powers regarding a broader range of superannuation trustee conduct, which were a result of the Financial Services Royal Commission.

Mercer proceeding consolidate ASIC's recent activity

The Mercer proceeding are perhaps no surprise to anyone who has been following ASIC's recent activity in this space. ASIC made its expectations clear with the release of Information Sheet 271 which provides responsible entities of managed funds and trustees of superannuation funds with guidance as to how to reduce the risk of engaging in greenwashing when offering or promoting sustainability-related products. Further, in line with the growing importance of climate change action and the material risk to financial systems, the Albanese Government has released a consultation paper on the development of an Australian climate risk disclosure framework to provide consistency and transparency in regulatory expectations and aligning Australian reporting requirements with global standards. These reporting requirements are expected to be mandatory for large entities – including for example, superannuation funds.

The Mercer proceeding is also consistent with ASIC's October 2022 warning to trustees that they should carefully consider whether the labels they use for their investment options support sound consumer understanding of the key features and risks of their offerings. According to ASIC, the investment option label is an important factor for consumers choosing which of the available super fund investment options offer expected returns and volatility that align with their individual risk profile. These labels often appear in a variety of locations including product disclosure statements (PDSs), public advertising, member communications, fund websites and external media including news and comparison websites. Among the most common deficiencies found through ASIC's surveillance were incorrect portfolio management style labels where terms such as "Sustainable" were used which had no relation to the underlying assets or risk profile of the investment option and unnecessary use of marketing language without adding any useful information.

The Mercer proceeding further reinforces ASIC's recent enforcement action in respect to financial products which are not true-to-label whether by inadequately describing or misleading investors about how environmentally friendly or sustainable investment options are, drawing inappropriate comparisons with other products to imply investment products are safer, lower risk or more liquid than they are, or inadequately determining a target market for a product. ASIC’s enforcement actions have ranged from warnings to product issuers and distributers, interim stop orders in relation to products inadequately meeting Design and Distribution Obligations or as in this case, litigating serious non-compliance.

Key takeaway

ASIC's recent action and public statements are a clear statement of the need for issuers (including superannuation trustees) to take great care with their various disclosures. Any statements, images, diagrams or other information contained in PDSs, public advertising, member communications, websites and media must not contain false or misleading statements, including in respect to any sustainability-related claims, and there must of course be a reasonable basis for them.

Specifically, superannuation trustees should consider:

  • reviewing investment option labels which appear in PDSs, public advertising, member communications, websites and media to ensure that amongst other things, investment option labels (eg. "Sustainable") appropriately reflect the assets of the relevant option and correlate with the risk profile of the investment option;
  • undertaking a review of any statements or images, diagrams or other information contained in PDSs, public advertising, member communications, websites and media to ensure that they do not contain false or misleading statements including in any sustainability-related claims, and there is a reasonable basis for any statements, projections or benchmarking. The trustee's due diligence process should also be considered and stress-tested;
  • reviewing their investment process and guidelines, to ensure that the investment team (and others involved in the investment process) continue to operate the relevant fund in accordance with the representations made (and where investments divert, that this has been disclosed); and
  • reviewing their member communications, marketing and advertising process to ensure that ancillary representations are consistent with what is stated in the PDS.

Please contact our Financial Services team who can assist in reviewing your compliance with your regulatory disclosure obligations.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.