What Active Super’s greenwashing case can teach fund managers

The super fund’s recent court judgement serves as a reminder that regulatory bodies have little patience for "greenruling" when it comes to greenwashing.

The Australian Securities and Investments Commission (ASIC) has continued to crack down on greenwashing, with issued penalties expected to quickly exceed the $11.4 million they hit this year in the wake of ongoing cases.

Speaking on the matter,  Zenith head of responsible investment and sustainability, Dugald Higgins said the recent Federal Court case involving Active Super should serve as a universal warning for fund managers.

Following this case, a new term - “greenruling” - has entered the fold to describe a situation where reliance on rules and technicalities in disclosures exceeds a realistic explanation.

Namely, in July the Federal Court found that LGSS Pty Limited, Active Super’s trustee, 
contravened the law in connection to various misleading representations concerning its environmental, social and governance (ESG) credentials.

According to Higgins, where Active Super went wrong is it used rigid or technical language, not easily understood by the public.

“The Active Super case puts fund managers on notice that they can’t rely on technicalities and evidence to support reasonable grounds. They must also consider how the information will be understood by a reasonable person,” Higgins said.

“It is vital for issuers to cautiously tread the line between what is considered reasonable grounds and how a reasonable individual would interpret any claims. This is not in conflict with ASIC’s guidelines, which focus more on emphasising that claims must be founded on reasonable grounds,” he said.

Higgins added that fund managers need to ensure they are using adequate evidence to back any greenwashing claims.  

“Clearly, in light of recent events, it’s the question of simplicity that’s easy to misjudge. We all recognise that claims must be supported by reasonable grounds, and reasonable grounds must be supported by evidence,” he said. 
“However, we also need to recognise that while evidence is part of the solution, it must not be at the expense of understanding.”

Earlier this month, John Moutsopoulos, partner at Mills Oakley, similarly warned that good intentions or honest mistakes won’t protect funds from greenwashing claims.

He noted at the time that ASIC’s rigorous examination of a wide range of sustainability claims and plans to further investigate vague terms, investment screens, and net zero statements, puts the regulator on a potential collision course with many super funds and fund managers who currently have or intend to have a public-facing sustainability profile.

In the 15 months leading up to 30 June 2023, ASIC made nearly 50 regulatory interventions targeting greenwashing, resulting in over $123,000 in infringement notice payments.

During this period, ASIC initiated civil penalty proceedings against Active Super and Vanguard Investments Australia and concluded a case against Mercer Super with an $11.3 million penalty in August.