Yesterday, the Australian Securities and Investment Commission (ASIC) announced its first greenwashing court action against Mercer Superannuation. We note that these are only allegations at this stage which Mercer will defend.
ASIC defines greenwashing as "misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical". Although this is the first court case on greenwashing in Australia, greenwashing has been a priority for ASIC and it has issued numerous infringement notices to businesses over alleged greenwashing.
For the avoidance of doubt, Mercer (N.Z.) Limited and the Mercer KiwiSaver Scheme, Mercer Super Trust workplace savings scheme and Mercer Flexisaver are not subject to the ASIC proceedings in Australia.
Summary of the alleged contraventions
ASIC's case turns on statements made by the super fund on its website during the period 12 November 2021 to 27 February 2023, concerning its sustainable superannuation investment options.
Broadly, ASIC alleges that the super fund represented that the sustainable options were not invested in companies involved in, or deriving profit from activities such as the production or sale of alcohol, gambling or the extraction or sale of carbon intensive fossil fuels. Despite this representation, ASIC alleges that these sustainable options did not in fact exclude investments in those types of activities.
ASIC is seeking:
- declarations that the super fund contravened s 12DB(1)(a) and/or s 12DF(1) of the Australian Securities and Investments Commission Act 2001(Cth) (ASIC Act);
- pecuniary penalties in respect of these (alleged) contraventions;
- adverse publicity orders pursuant to s 12GLB(1) of the ASIC Act; and
- an injunction pursuant to s 12GD(1) of the ASIC Act, restraining the super fund from continuing to engage in the alleged conduct.
The date for the first case management hearing is yet to be scheduled by the Court.
What’s happening in New Zealand?
Despite this case taking place in Australia, this is the beginning of a trend, and we expect regulators in New Zealand such as the Financial Markets Authority (FMA) and Commerce Commission will take a lead from these international developments.
The commencement of New Zealand’s mandatory climate-related disclosure regime under Part 7A of the Financial Markets Conduct Act 2013 (FMCA) will put a public spotlight on greenwashing claims in respect of climate-related disclosures.
The FMA and Commerce Commission have been laying the ground work for enforcement action to be taken in relation to greenwashing.
Financial Markets Authority
In December 2020, the FMA published guidance for issuers of financial products that incorporate non-financial factors such as natural, social and human capital (see here). The FMA stated that it wants to ensure that “investors can be confident these products deliver what they promise and that investors are protected from poor product design and confusing or misleading disclosure and marketing (i.e. greenwashing)”.
In July 2022, the FMA published a report on their review of disclosure practices for a sample of managed funds (including KiwiSaver funds) that use an integrated financial product label in their name or description (e.g., sustainable, ethical, green). See our news alert on this here. The review stated that managers had a lot of work to do to make sure that claims were accurate and that the FMA expects managers to “take the necessary care not to mislead or confuse investors with greenwashing”. The FMA also noted that it will “continue to monitor to prevent complacency and the entrenchment of poor disclosure”, with the subtext being that enforcement action is likely if there is non-compliance.
The Commerce Commission
In July 2020, the Commerce Commission published guidance for traders to help them understand their obligations when making environmental claims (see here). To date, the Commerce Commission has not published any guidance for traders on making broader ethical and/or social claims, but it will not ignore consumer complaints about such claims.
The Commerce Commission classifies an environmental claim as “a representation about the environmental impact of the production, distribution, use and disposal of a good or service” and in its guidance document provides general principles for traders to follow to ensure their claims are substantiated, truthful and not misleading.
While the Commission has only brought a small number of greenwashing cases to date, we have recently seen an increased focus in this area. We expect the Commerce Commission will be looking to provide more guidance on broader ESG claims and to make an example of companies who are engaging in greenwashing. We anticipate that the Commission will monitor this space carefully, especially given their counterpart in Australia (the Australian Competition & Consumer Commission) last year announced its enforcement priorities for 2022/2023 will include misleading environmental and sustainability claims (see here), and just yesterday announced that it will be investigating a number of potential ‘greenwashing’ claims following an internet sweep (see here).
How could a similar action be brought in New Zealand?
The FMA could bring a greenwashing (or similar) claim against financial service providers and/or issuers of financial products relying on a breach of the ‘fair dealing rules’ under Part 2 of the FMCA. This Part broadly provides that issuers and financial service providers must not be misleading, deceptive, or make unsubstantiated representations.
The equivalent of fair dealing rules for other types of businesses that are in trade is under the Fair Trading Act 1989, which is enforced by the Commerce Commission.
Other news alerts to consider
We also refer you to the following news alerts that discuss these issues:
- Greenwashing: A regulatory focus for 2023 and beyond
- What's hot? Climate change litigation in New Zealand
- Greenwashing: The new due diligence environment
- FMA review of ESG funds
If you have any questions in relation to greenwashing, climate-related disclosures, or how this case may affect your business, please contact one of our experts.
This article was co-authored by Shaanil Senarath-Dassanayake, a Solicitor in our Banking and Financial Services team.
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