Over the past decade, the wish for investors, including SMSF members, wanting to allocate monies to environmental, social and governance, or ESG, managed funds or projects has significantly increased. But having acknowledged this, do these individuals really know if their chosen investments are actually true to label?
The worrying thing is I think the answer to this question is no. I have drawn this conclusion simply from the stories I have been told by certain industry stakeholders whereby many investors are satisfied if the investment vehicle they have chosen contains those three magical letters without going into any deeper analysis than that.
Such scant regard to find out the true nature of investment opportunities claiming to represent ESG interests meant exploitation and manipulation of this thematic category was pretty easy and not uncommon. It’s a phenomenon called greenwashing.
A classic example of this was seen recently when Mercer Superannuation (Australia) admitted to making misleading statements about the sustainable nature and characteristics of some of its investment options. And if you think it was some sort of subtle manipulation of ESG claims, it most certainly was not.
The misleading statements were part of the Mercer website with regard to Mercer Super Trust in relation to seven investment options under the Sustainable Plus offering. According to the financial services organisation, this investment choice was aimed at fund members who are “deeply committed to sustainability”. To this end, Mercer claimed the Sustainable Plus options did not hold investments in corporations involved in carbon-intensive fuels, such as thermal coal, alcohol and gambling.
However, in reality the Federal Court found individuals who chose to have an allocation to the Sustainable Plus offering were actually invested in 15 companies involved in the extraction or sale of carbon-intensive fossil fuels, a further 15 companies involved in the production of alcohol and another 19 companies involved in gambling. Certainly not something that can be brushed away as an insignificant oversight.
The financial services organisation was duly punished for this rather significant indiscretion, with the Federal Court handing down an $11.3 million penalty as a result of these incorrect claims.
In handing down the decision, Justice Horan noted: “It is vital that consumers in the financial services industry can have confidence in ESG claims made by providers of financial products and services. As is the case in many other industries, consumers may place great importance on ESG considerations when making investment decisions. Any misrepresentations in relation to ESG policies or practices associated with financial products or services, whether as an aspect of ‘greenwashing’ practices or otherwise, undermines that confidence to the detriment of consumers and the industry generally.”
The Federal Court decision comes at around the same time the Australian Securities and Investments Commission revealed it had made 47 regulatory interventions to address greenwashing misconduct between 1 April 2023 to 30 June 2024.
It is an indication regulators are imposing a concerted crackdown on greenwashing actions and this is good news for SMSF members keen on ESG investing. It means future offerings are more likely to be true to label and in turn SMSF portfolios will hold investments that will actually achieve the greater societal effect trustees are after.
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