On 21-22 November 2023, the Australian Securities & Investments Commission (ASIC) hosted the ASIC Annual Forum with a focus on 'navigating disruption'. With heightened geopolitical uncertainty and market volatility, ASIC outlined its key focus areas for 2024:
- Sustainable financial reporting and disclosure
- Addressing misconduct in the superannuation sector, and
- Ensuring fair and orderly financial markets.
ASIC Chair, Joe Longo explained that in this time of unpredictability in the global economy, poor sustainable financial reporting and disclosure remains an area of serious potential harm to consumers.
ASIC Deputy Chair, Sarah Court reinforced this viewpoint noting ASIC's success in issuing guidance, conducting extensive surveillance and instituting proceedings in the Federal Court against certain superannuation trustees and Vanguard Investments Australia with respect to alleged misleading statements about exclusions and screens purported to apply to various investment funds.
"Going forward our focus will be on net zero statements and targets made without a reasonable basis; the use of terms like 'carbon neutral', 'clean' or 'green' that are not founded on reasonable grounds; and the use of inaccurate labelling or vague terms in sustainability-related funds."
This is a timely reminder for the asset management industry that net zero statements and targets will be deemed to be misleading unless the person making the representation had reasonable grounds for making it.
Both the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth) provide that representations as to future matters are taken to be misleading unless they are made on reasonable grounds.
Importantly, reasonable grounds for making a representation as to a future matter requires there to be a factual foundation for the representation.
When publishing net zero statements and targets, you should clearly explain:
- how and when you expect to meet your target;
- the metrics used;
- any assumptions that have been relied upon;
- process for review; and
- whether the target or methodology for setting the target has been validated by an independent third party.
Furthermore, directors should also ensure that appropriate governance is in place at board level for signing off the statements and targets and there is ongoing compliance with any continuous disclosure obligations.
ASIC will continue to take what it believes is a proportionate approach to misconduct in the area of sustainable finance and greenwashing. Infringement notice outcomes and court outcomes are public and provide an efficient mechanism for deterrence and education.
Sustainable finance will continue to be a transformational issue for global markets, which is "driving the biggest changes to financial reporting and disclosure standards in a generation" said the ASIC Chair. Trustees and asset managers should remain diligent in ensuring all statements are made on reasonable grounds, not only to protect investors but also to avoid ASIC scrutiny.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.