The Australian Securities and Investments Commission (ASIC) has said combating greenwashing is “critical to maintaining trust in sustainable finance-related products and services.” During the last two years the regulator has reported dozens of regulatory interventions. An ASIC investigation recently led to a $10 million plus Federal Court penalty for Active Super.
Insurers and brokers in the financial services sector are now obliged to keep a closer watch on the green claims of their clients and any insurance implications.
Kym Beazleigh (main picture) agreed to answer questions about some of the greenwashing challenges facing financial institutions (Fis). Beazleigh is head of professional and financial risks in Australia for Markel Insurance. The global firm’s recently launched FI insurance offering focuses on the corporate businesses that are also in ASIC’s sights, including private equity funds, mutual funds, credit unions, superannuation funds and investment trusts.
“I think there’s definitely been heightened expectations around ESG [environment, social and governance] for FIs,” said Beazleigh. He said if these risks - that include potential greenwashing issues - are not managed properly, the adverse reaction from shareholders and the public can damage the brand and the balance sheet.
In the context of the ESG risks faced by financial institutions, Insurance Business asked how important is the issue of greenwashing? “It's definitely something that's on our agenda,” said Beazleigh.
He said in the last few years – or roughly since ASIC has focused more closely on ESG and greenwashing - FIs have learned that if they are going to promote an ESG policy “it needs to be factual, it needs to be real, it needs to be stress tested and you need to be able to evidence that you have all of those controls and protocols in place.”
Beazleigh provided some tips for brokers helping financial institutions to manage these risks. He said face to face engagements to discuss these challenges are preferred “wherever possible.”
“You can certainly stress test and ask for evidence and the day-to-day examples of the execution of the strategy that you're telling us is in place,” said the Markel FI specialist.
He compared it to getting under the bonnet of a car.
IB suggested that Beazleigh was recommending that brokers should confirm concrete examples of ESG policies from their clients rather than just the words in a policy document? “Yes, definitely,” he said. “I think the key for me is asking for evidence or examples that show if you've got a plan in place, what are some of the things that you've done in the last 12 months to evidence that?”
Beazleigh said he has seen examples of company projects designed to reduce greenhouse gas emissions that demonstrated this approach. “They were able to evidence: here are the people that were involved, here's how we put this in place, here's how all of the staff were made aware of it, and here was the outcome, the improvements that we made over a 12-month period,” he said. “Rather than just saying, ‘There's my policy.’”
“This is a significant penalty that sends a strong message to companies making sustainable investment claims that those claims need to reflect the true position,” said Sarah Court, ASIC’s deputy chair Sarah Court.
The regulator’s media release said Active Super claimed in marketing that it eliminated investments that posed too great a risk to the environment and the community, including gambling, coal mining and oil tar sands.
However, contrary to these representations, said the release, the super fund held direct and indirect investments in companies including gambling firm SkyCity Entertainment Group Ltd, Shell Plc that mines oil tar sands and also Whitehaven Coal.
Are greenwashing risks a topic of conversation with your clients? What’s one way your help them manage these risks? Please tell us about it below
