FMA plans to crack down on greenwashing

The FMA is ramping up its surveillance of so-called “green” funds and other ESG investments to ensure they’re compliant with guidance the regulator published 12 months ago.

Monday, July 11th 2022, 7:42AM

by Jenni McManus

The issue of “greenwashing” – defined by the FMA as overstating the green features of a product or fund or mislabelling a product as “green” or providing misleading information – was flagged by incoming CEO Samantha Barrass earlier this year as one of several areas of interest and a report is expected soon.

The guidance is blunt: greenwashing is illegal and the FMA can act to stamp it out. “Providers must clearly explain and substantiate how [these products] are ethical,” it warns.

The importance of correct and verifiable labelling was raised in April by a Mindful Money/RIAA Money survey which found 50% of respondents were concerned about greenwashing and 54% would be more likely invest in a fund that was certified by an independent third party.

Nevertheless, despite worries about greenwashing, the survey found that nearly three-quarters of respondents (73%) want their funds to be invested responsibly and ethically, and 56% said they would consider switching KiwiSaver funds if they discovered their fund was investing in companies that were not consistent with their values.

Younger investors were more likely than Baby Boomers to make the change: 60% of millennials (aged 25-39) and 57% of Gen Z (18-24), compared with only 52% of those over 60.

At the time, Simon O’Connor, CEO of the Responsible Investment Association of Australasia (RIAA), said firms needed to be able to substantiate ESG claims and provide supporting evidence.

Across the ditch, ASIC (the Australian Securities & Investment Commission) last month released an information paper about how businesses could avoid greenwashing when promoting sustainability-related products. O’Connor said he welcomed the guidance, which would help investment managers to raise the overall quality of sustainable finance products in Australia and better meet consumer expectations.

“Greenwashing poses a real threat to the future of sustainable finance,” he said. “Our 2021 research shows that while the majority (89%) of the Australian investment market claims to be responsible, it is just 40% of managers that are engaged in leading-practice responsible investing.”

As the Mindful Money/RIAA survey shows, there is a strong appetite in New Zealand for green investment – a big change from a decade ago.

David Ireland, a partner at Dentons Kensington Swan, says while it was an open question 10 years ago as to whether it was prudent to restrict investment options by imposing an SRI (social and responsible investment) filter, ESG was now considered mainstream.

“The dial has completely flipped so now if you’re not thinking about SRI and ESG considerations, are you actually being prudent?”

Simon O’Connor, CEO of RIAA, says investors and are demanding that their providers can back up their claims. “Consumers have awoken to the opportunity to invest in line with their values but are also much more attuned to cut through the spin to find products that deliver on the most important issues for them.”

Tags: RIAA