Greenhushing is another form of greenwashing: ASIC

Greenhushing - in which companies stop all voluntary disclosure of ESG information - is just another form of greenwashing, according to ASIC chair Joe Longo.

In a public speech last week, Longo provided additional context to the market regulator's focus on ESG action and disclosure by companies - what he called governance, greenwashing and the growth of sustainable finance.

Longo noted that for institutions "it's not a question of 'shareholder returns or ESG', but of shareholder returns with ESG. Rather, it's a question of fair and efficient markets, and of confident investment," and said that "ESG reporting is simply the next stage in a long series of important moves towards greater transparency and higher disclosure standards. Moves that benefit us all, from the consumer to the investor, to companies themselves - to say nothing of the planet".

Longo referenced a recent ASIC report that summarised ASIC's recent crackdown on scrutiny.

In the report, ASIC identified four main categories of greenwashing: "Net zero statements and targets without a reasonable basis or that are factually incorrect"; "terms like 'carbon neutral', 'clean' or 'green', that aren't founded on reasonable grounds"; "overstatement or inconsistent application of sustainability-related investment screens"; and "the use of inaccurate labelling or vague terms in sustainability-related funds."

"Now, in response to ASIC's scrutiny of greenwashing, some companies may be tempted to cease all voluntary disclosure, chasing greenwashing with a little 'greenhushing'," he said.

"Last year, for example, the Swiss carbon finance consultancy, South Pole, released an international report that found nearly a quarter of the 1200 companies surveyed have decided not to talk about their net-zero commitments at all. South Pole's report sparked an intense discussion globally, with many condemning the policy of keeping quiet as simply another form of greenwashing.

"Domestically, we've observed some commentators and firms saying, in effect, 'we have such a good ESG policy, but we can't say anything about it because the regulators won't let us'. The reality is the critics are right: this kind of response is just another form of greenwashing; an attempt to garner a 'green halo' effect without having to do the work."

Longo noted that ASIC's greenwashing work aligns with the government's broader sustainable finance agenda, including mandatory climate disclosure and a future sustainable finance taxonomy.

"The agenda is not yet fully enacted, but ASIC will not hesitate to enforce the existing legal obligations as they stand," Longo said. "The prohibition against misleading and deceptive conduct is a longstanding element of those obligations, and this is where our focus on preventing greenwashing falls."

Elsewhere in the speech, Longo urged companies to lift their game on governance structures as relates to ESG and sustainability, given domestic and international momentum for increased disclosure in climate risk and future signals into similar disclosure of nature and biodiversity.

He advised that companies need to think about how sustainability and financial reporting work together, "how can we ensure that marketing and advertising teams work with the legal and risk teams to ensure cohesion around sustainability-related claims," and "what assurances and processes can be put in place to ensure that the board is appropriately informed and confident about the information that is being put out".

Ultimately, these governance and oversight changes are necessary because of the growth of sustainable finance.

"The ESG space is complex and changing - and it's of global significance," Longo said. "I would go so far as to say this is the biggest change in the financial services sector in a generation. We need to be prepared for that change as it unfolds.

"Why? Because Australia is part of a global financial ecosystem. As Australia's markets regulator, we recognise that, and we're engaging heavily at both the domestic and global level to ensure that what we're doing in Australia is informed by what is happening overseas."

This article first appeared on FS Sustainability

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