by Andrea Malcolm
On Tuesday in the Australian Federal Court, the Australian Securities and Investment Commission (ASIC) began legal action against Mercer Superannuation (Australia) for greenwashing. Two days later the Australian Competition and Consumer
Commission (ACCC) has announced an investigation into a number of businesses concerning claims about their environmental or sustainability practices.
Simon O’Connor, head of the Responsible Investment Association of Australasia (RIAA), says the ASIC case is a huge warning for the industry on both sides of the Tasman.
The RIAA, which has more than 500 members including fund managers and financial advisers in Australia and New Zealand, champions responsible investing and a sustainable financial system in both countries.
Australia-based RIAA CEO Simon O’Connor says whether it’s the Financial Markets Authority in New Zealand or ASIC in Australia, regulators in the region have been clear about their expectations that superannuation fund providers, KiwiSaver providers, and fund managers be clear and transparent about what they’re doing.
“It's very clear what the regulators are focused on; they want to see absolute precision and no vagueness in terms of the language used because there is a risk of consumers being misled. “Where there’s room for consumers to be misled they will be very concerned and they are going to protect consumers. This is a massive warning for managers and providers across our region. ”
O’Connor says expectations are shifting and evolving very quickly. “Our industry needs to be precise on stating what [the investor] is coming into.”
Mercer is a member of the RIAA in Australia and New Zealand and was named as an RIAA leader investor in the RIAA New Zealand benchmark report in 2021. O’Connor says this applies at the entity level and not the product level, and does not apply to Mercer Superannuation (Australia) and the products involved in the ASIC court action. He says product certifications are reviewed as new information on new products comes in during the two year review cycle.
“When we review funds for our certification level, we’re looking each time to see if the fund manager is clear about any exclusions, what this looks like, real precision around what is being excluded or included in a portfolio, that those exclusions are reasonable for an average consumer to understand, and that they [the fund managers] have the processes to implement those exclusions.
“I think regulators are getting more attuned to this and these are the areas where we are seeing regulator action in our region. These are the areas where fund managers and providers are getting themselves tripped up by a lack of clarity, lack of precision and not enough substantiation of their approaches.”
For the RIAA, an example of precision in language might apply to the use of the term ‘fossil fuels’.
“We sometimes get nervous when we see a commitment in a product that says it avoids investment in fossil fuels, because there are various definitions as to what that could include from thermal coal, metallurgical coal, oil and gas tanks, conventional and unconventional upstream and downstream refining, and retail energy generation.
“What we require is a clear description as to what that definition means in the language of that provider. That’s the key area that we see as really challenging, and it’s not our preferred language to see a flat out exclusion on fossil fuels because the fossil fuel industry is very wide ranging in terms of what it encompasses and the multiple sectors around it. Our preference is to see very specific articulation of the exclusion; for example ‘we exclude thermal and metallurgical coal extraction and generation’ rather than saying ‘we exclude fossil fuels’.”
What about if the number of excluded stocks is tiny? “We understand through our consumer research that consumers either care about an issue or they don't. And for a consumer, whether that exposure is a 0.1% weighting or an 8% weighting in a portfolio is not really the pertinent issue. I don't think that small exposure has ever been an argument in support of having some exposure that contradicts an exclusion. And I don't think it would pass muster with regulators either. So the weighting is immaterial. We just find consumers who tune into this area and who want to align their savings with their values generally have a zero tolerance around the issues they care about.”
| « Australian watchdog sues Mercer in first greenwashing case | Fund managers, Mindful Money look for ways forward » |
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