The Financial Services Council (FSC), Australia’s financial services industry’s standards and policy setting body, announced the release of new climate-related guidelines for investment managers to set targets, report on risk, and avoid greenwashing.
The primary purpose of the guidelines is to set common baseline expectations for the industry’s approach to net zero claims, disclosure of climate-focused investment features, and reporting on climate-related risk.
The new rules come as investor interest in ESG and climate risk has undergone significant growth, driving a proliferation of investment products and services marketed as ‘green,’ ‘sustainable,’ or ‘net zero,’ but without clear rules communicating to investors the actual sustainability-related attributes, methodologies and criteria that are being considered in the funds.
Key topics covered by the guidelines include setting net zero targets for investment portfolios, with a particular focus on assessing portfolio emissions, and reporting climate risk in line with the Taskforce on Climate Related Financial Disclosures (TCFD).
The publication also provides guidance for investment managers for labelling of funds that claim to address climate risk, in order to avoid greenwashing by misrepresenting the sustainability attributes of the funds. The guidance includes expectations for the disclosure of funds’ objectives and sustainability-related investment approaches, for fund labels to be accurate and clearly defined, as well as for disclosure around ongoing assessment and engagement, in addition to reporting obligations and recommendations for independent verification about net zero claims.
The release of the new FSC guidance follows the announcement by Australia’s corporate, markets, and financial services regulator ASIC that it is on the lookout for greenwashing by investment funds, and its own publication of guidance aimed at helping fund managers and issuers to avoid greenwashing when promoting or offering sustainability-related products. Regulators in several major markets have recently introduced ESG fund labelling and disclosure rules, including a proposal by the U.S.’ SEC, the EU’s Sustainable Finance Disclosure Regulation (SFDR) framework, the UK’s FCA’s requirements, and Singapore’s MAS’ new reporting and disclosure requirements for ESG funds introduced last week.
According to FSC CEO Blake Briggs, the publication provides a “signal to Government, regulators and consumers the Australian investment community sees acting on climate change risk is a top priority and is taking a leadership position on emissions reduction and meeting net zero targets.”
“The FSC wants consumers to have confidence fund managers who set net zero targets are assessing their portfolios with robust science-based methodology and are working with companies they invest in to reduce emissions.”