Check against delivery
Good afternoon.
Thank you to the Responsible Investment Association Australasia (RIAA) for the opportunity to join you today. The Association has clearly set your target statement: to scale new heights in sustainability and with impact.
I would like to begin by acknowledging the Traditional Owners鈥� ongoing connection to, and custodianship of, the lands on which we meet 鈥� for me today the Wurundjeri people of the Kulin nation, and to pay my respects to their Elders past, present and future. I extend that respect to Aboriginal and Torres Strait Islander people with us today.
I鈥檇 also like to acknowledge the long-standing contribution of the RIAA. Having begun this journey to scale new heights in 2000, some 23 years ago.
As Australia's integrated corporate, markets, financial services and consumer credit regulator, our enduring 鈥榥orth star鈥� is maintaining fair and efficient markets. To do that we need to have confident and informed investors.
That鈥檚 why it should be no surprise that sustainable finance is today a 鈥榳hole of ob体育鈥� priority. And I鈥檓 sure of no surprise to all of you, it will be an enduring one. As sustainable finance has itself become an enduring force, and exponentially so, driving the global capital frontier.
What matters most to us is to support market integrity through proactive supervision and enforcement of governance, transparency and disclosure standards for sustainable finance. Especially now as they relate to climate.
Why? Tackling climate change (through decarbonisation) is arguably the single biggest driver of global capital developments and allocation. Today and for the foreseeable future. Two statistics 鈥� one global, one local 鈥� reveal why:
- the overwhelming majority of global GDP (90% by latest estimates) is now covered by a national net zero target at or around mid-century,
- and locally, 2022 Australian Council of Superannuation Investors (ACSI) research tells us that 70% or $1.6 trillion of the ASX 200 market cap is subject to a net zero commitment.
Globally, the infrastructure required to get to net zero will require a step change in capital reallocation. McKinsey recently estimated this amount to be 9.2 trillion US dollars annually, a 60% increase on current spend.[1]
So, market transparency and integrity are essential. Their absence runs counter to fair and efficient markets. Their absence also runs counter to confident and informed investors supporting this transition. All of which is needed for the efficient deployment of this transition capital.
And failure to do so will impose a pernicious and costly drag on our economy. And why pernicious? Imposing a long-lasting impost on our cost structures and drag on our global competitiveness. And where the incidence of those economic costs will likely prove regressive.
Greenwashing (put simply) is for ob体育, and I鈥檓 confident for all of us here today, a corrosive agent to market integrity and thus to fair, efficient and informed markets.
From our perspective, there are three 鈥榤ust haves鈥� to ensure we maintain fair and efficient sustainable finance markets.
All three, working collectively, should prove an effective antidote to greenwashing.
They are:
- transparency, through disclosures that comply with today鈥檚 law and ultimately a quality, global baseline for sustainability-related disclosure standards,
- policy-installed 鈥榖right lines鈥� to support that disclosure, and
- regulators doing their job and working together in doing so.
Before I take us through the three antidotes, let me expand a little more on the greenwashing imperative.
Greenwashing is a growing playing field
We identify 鈥榞reenwashing鈥� to be the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical.
Greenwashing distorts the information that a current or prospective investor might need to make informed investment decisions. In doing so it results in capital misallocation. Greenwashing corrodes investor confidence in the market for sustainability-related financial products and corporate strategies.
And we are dealing with an ever-growing playing field for greenwashing. Again, this plays out in the numbers.
Internationally, Bloomberg Intelligence estimates that ESG assets are projected to exceed 53 trillion US dollars by 2025 and represent more than a third of total assets under management.
Locally, the RIAA鈥檚 2022 Responsible Investment Benchmark Report[2] revealed that 17% of Australians currently hold responsible investments, and more than a quarter plan to invest responsibly in the 12 months following the report鈥檚 publication.
Australia-wide, the number of assets managed using a responsible investment approach has increased to $1.54 trillion, now accounting for 43% of the total market for managed funds[2]. So, supply is clearly moving to meet demand.
On the listed company disclosure side, ob体育鈥檚 analysis finds over 400 companies referenced the terms 鈥榗arbon neutral鈥� or 鈥榥et zero鈥� in price sensitive ASX announcements in 2022. In 2019 it was below 50 鈥� so an eightfold increase in just three years.
And with the transition heavy lifting that lies ahead, this direction of investment demand will continue
The Australian Parliament last year enacted the Climate Change Act 2022, setting in legislation its ambition to reach net zero by 2050 with an interim target of a 43% reduction in emissions by 2030 (off a 2005 baseline). More recently, yesterday鈥檚 (2023-24) Budget announced a further $4 billion in renewable energy programs, including a new $2 billion program to support hydrogen production.
We are also beginning to see large scale industrial policies tilt towards the furtherance of decarbonisation objectives in key jurisdictions such as the USA (with the Inflation Reduction Act) and the EU (with the Green Industrial Plan).
Through the work of the Taskforce on Nature-Related Financial Disclosures, we see the increasing emergence of biodiversity risk and opportunity as a key consideration.
As capital around the world leans into the investment task at hand, trust and transparency are paramount.
ob体育 is not on its own here (and no regulator is an island). Greenwashing has been identified as an area of concern and priority by many securities regulators globally. The ACCC and Clean Energy Regulator too have prioritised work in this area, working in alignment with us. And we are working with our Council of Financial Regulator colleagues through the CFR鈥檚 Climate Working Group, which I鈥檒l return to later.
Transparency through disclosure 鈥� with 鈥榖right lines鈥�
Turning to the first of our greenwashing antidotes, transparency through disclosure. And this a story of an evolving policy landscape. And evolving at pace. Let me cover a few recent important developments.
But before I do, it would be remiss of me not to acknowledge that ob体育 began this drive to lift climate-related financial disclosures back in 2018. Since then, we have been encouraging voluntary climate-related disclosures consistent with the framework developed by the Taskforce on Climate-Related Financial Disclosure. Close to three quarters of the ASX 100 now report voluntarily under the TCFD framework.
Then, two years ago, the global disclosure standards world changed. It seemed like overnight and has moved at pace since. In late 2021, the International Sustainability Standards Board (ISSB) was established under the auspices of the global accounting standard setter, the International Financial Reporting Standards (IFRS) Foundation. This is a beyond significant development. It matters in our quest for fair and efficient markets supporting the transition capital allocation. And our quest to stamp out greenwashing.
The ISSB seeks to deliver a quality and comparable global baseline of sustainability-related disclosure standards. Their goal is to provide investors and other capital market participants with the key information that they need. They are finalising their first two standards this year 鈥� one on general sustainability and the other on climate-related financial information. The ISSB is planning to issue its first two standards by the end of June 2023 and it is prioritising the climate related disclosures in the initial application.
To bring to life how we see these disclosure standards becoming an ongoing transparency antidote to greenwashing, let me unbundle some of the disclosures they will herald. And how they will ultimately create comparability.
On target statements, the draft ISSB standard proposes the disclosure of information such as:
- how progress towards reaching the target is measured,
- the specific target and type (for example, absolute or intensity),
- what is the target objective (for example, mitigation, adaptation),
- how a target compares to the latest international agreement and whether it has been validated by a third party,
- any milestones or interim targets, and
- the period the target applies to and the base period to measure progress.
On the intended use of carbon offsets, the draft ISSB standard proposes the disclosure of (among other things):
- the extent the target relies on carbon offsets,
- whether offsets are subject to third-party verification and if so by whom,
- the type of carbon offset used (for example, carbon removal or emission avoidance), and
- any other significant factors to understand the credibility and integrity of the offsets, such as permanence.
Here in Australia, the Government (through the Australian Treasury) has been consulting on the introduction of a proposed mandatory climate change-related disclosure regime for large businesses and financial institutions (including superannuation funds) 鈥� aligned with international best practice under ISSB.
ob体育 supports both the shift to mandatory disclosure in Australia and the work of the ISSB in developing the global baseline to do so. For all of us, a global baseline is a must-have antidote to greenwashing. And a must-have if Australia is to remain a destination for global capital.
In parallel, and importantly so, the Government has work underway to develop the policy scaffolding that will deliver locally on this transparency, and in a comparable way over time. The Treasurer late last year announced that the Government has tasked Treasury with developing a comprehensive sustainable finance strategy. The Government expects consultation on the strategy will get underway in the second half of the year.
The strategy will include the development of new standards or taxonomies for sustainable investment, and further initiatives to reduce greenwashing and strengthen ESG labelling. The Government is also introducing a sovereign green bonds program. Further, the Treasurer last month announced that the Government will co鈥慺und the initial development phase of an Australian Sustainable Finance Taxonomy, in partnership with industry through the Australian Sustainable Finance Institute. And you have a great panel to hear from tomorrow on the sustainable finance taxonomy.
Taken collectively, these policy initiatives will provide the 鈥榖right lines鈥� to afford greater comparability in climate-related financial disclosure and, over time, sustainability issues more generally.
Taken collectively they will also, over time, prove to be a broad antidote to greenwashing. The 鈥榥owhere to hide鈥� transparency of quality and comparable climate-related financial disclosures with the supporting policy installed 鈥榖right lines鈥�.
Over the long-term, case-by-case intervention is not a cost-effective nor comprehensive antidote to greenwashing. We are therefore active in supporting Treasury in these policy developments to support increased transparency and trust across the system.
Of course, this does not mean that ob体育 is stepping back from our greenwashing regulatory action in the here and now.
In addition to working closely with our Council of Financial Regulator colleagues to support Treasury on the policy build, we are tasked with administering and enforcing existing law. We are taking action against greenwashing today.
ob体育 getting on with greenwashing action
Close to a year ago, we released our Information Sheet 271 directly titled, and intentionally so as: 鈥楬ow to avoid greenwashing鈥�. Informed by surveillance findings, it was our way to help super funds and investment managers avoid greenwashing when offering or promoting sustainability-related products. Alongside its release, we announced sustainable finance and greenwashing as ob体育 priorities.
鈥楬ow to avoid greenwashing鈥�, was short (at 7 pages), based on current legal obligations and intended to be practical. We posed nine simple questions that issuers (and indeed many other companies) should make sure they ask and answer in seeking to avoid greenwashing. They included:
- Have you used vague terminology?
- Are your headline claims potentially misleading?
- Is there a reasonable basis for a stated sustainability target?
- Is it easy for investors to locate and access relevant information?
We shared case study examples of where companies cleared or failed the 鈥榙os and don鈥檛s鈥� embedded in these questions.
We then moved to expand our surveillance and regulatory action on greenwashing. Mindful of the need to lift the conduct tide on greenwashing, and in advance of the significant uplift in climate related disclosure globally and ultimately locally.
So, fast-forward to today. Today we released 鈥�ob体育鈥檚 recent greenwashing interventions鈥�, a short report (some 10 pages) on our regulatory actions on greenwashing since the publication of 鈥楬ow to avoid greenwashing鈥�.
As the report highlights, we have been active in addressing greenwashing, by making some 35 interventions in nine months.
Importantly, our report outlines how and why we intervened alongside the corrective outcomes of our actions. In doing so, it is akin to Season 2 of 鈥楬ow to avoid greenwashing鈥�.
Our work focused on disclosure documents, product disclosure statements, advertisements and other market disclosures by managed funds, superannuation funds and listed companies.
First, and by the headline numbers, from 1 July 2022 through to 31 March 2023, we:
- secured 23 corrective disclosure outcomes,
- issued 11 infringement notices, and
- commenced our first civil penalty proceeding.
It also calls out the positive impact of our 鈥楬ow to avoid greenwashing鈥� (Season 1). Anecdotal reports and direct industry feedback suggest that our 2022 information sheet has assisted product issuers to improve their disclosures and manage their risk of greenwashing.
Importantly, today鈥檚 report details the main problems we found and addressed across our 35 interventions, including:
- net zero statements and targets not having a reasonable basis or being factually incorrect,
- terms like 鈥榗arbon neutral鈥�, 鈥榗lean鈥� or 鈥榞reen鈥�, not underpinned by reasonable grounds,
- the scope or application of sustainability-related investment screens being either overstated or inconsistently applied, and
- the use of inaccurate labelling or vague terms in sustainability-related funds.
But we are not stopping there. We continue to progress ongoing investigations and open new surveillances. Last week we issued another infringement notice to a super fund, highlighting that their statements on social media promoting green claims are not immune to ob体育 action.
In addition to continuing our surveillance of the managed fund and corporate sectors, we are progressing surveillance of the superannuation fund sector and the wholesale green bond market. There is a distinct pipeline.
But this action resides alongside our supporting the 鈥榓ntidote鈥� policy work of the Government, as we work with the Treasury and our CFR colleagues.
It鈥檚 important here for me to acknowledge the further resourcing support from the Government for our greenwashing work. The Treasurer recently announced additional funding for ob体育 (of $4.3 million for 2023-24) to continue our greenwashing surveillance and enforcement work.
With many of you here today in the funds management industry, let me finally draw together the practical take-outs:
- a reminder on Information Sheet 271 in terms of complying with your existing legal obligations to avoid greenwashing,
- consider our report released today, which highlights the kinds of statements and disclosures we have been taking issue with,
- keep on top of emerging policy developments, and finally
- ensure your governance practices are, and remain, fit for sustainability purpose 鈥� as the tide lifts.
One final PS thought. And something that is sometimes missed here. When a significant cohort of businesses and financial institutions are disclosing under a mandatory disclosure framework, and the information is high quality 鈥� that information is a valuable asset for everyone, including fund managers. It provides the baseline information to better support product development and in turn disclosures at the fund level. For me, it鈥檚 an extraordinarily valuable public good from the 鈥檌nformation architecture鈥� of disclosure.
In closing, at ob体育 we too aspire to scale heights. For us to herald the best chance for fair and efficient sustainable finance markets.
It is no accident that ob体育 has, since 2018, maintained our regulatory focus on improving climate-related financial disclosures. And now, today, with the welcome planetary alignment of a global baseline of sustainability related disclosures, alongside the policy scaffolding offering 鈥檅right line鈥� support 鈥� and regulators doing their bit. All three proving an enduring, collective antidote to greenwashing.
Thank you.
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