The window for greenwashing is closing
The window for greenwashing is rapidly closing as laws, regulations, and standards are being established for our sector. If you are struggling to keep up with the rapid fire of acronyms, codes, consultations, and guidance being produced around responsible investment and sustainable finance, then you’re certainly not alone.
This year has seen more scrutiny than ever on responsible investment – from United States Republicans’ attack on ‘woke ESG firms’ to police raids on DWS over allegations of greenwashing. This comes at a time when there is a rapid maturing going on in this sector whereby regulators are playing catch up, and standards, frameworks, and definitions are being encoded into law. This is a critical moment in the progress of our sector where much of the industry’s work that has been evolving, pioneering, and testing is now about to come in to land, right in the middle of the main street of finance-land.
This is the moment where the way we do responsible investment is being encoded and hard-baked into the laws and regulations that guide the finance industry. And it is why we are focusing a huge amount of resources on this policy and advocacy task: to ensure these standards are embedded in a manner that aligns capital with achieving a healthy and sustainable society, environment and economy, consistent with our mission.
It’s why in the last fortnight alone for example, we have advocated firmly in our submission to the International Sustainability Standards Board (ISSB) to establish a strong global baseline for consistent sustainability disclosures. It’s why we have been part of a joint statement encouraging the Australian Parliament to pass legislation that enshrines a strong 2030 target for emissions reductions. It’s at the core of why we’ve been advocating strongly to regulators, on both sides of the Tasman, for clarity and guidance for investment organisations to avoid greenwashing, and why we welcomed recent interventions by the FMA and ASIC. It’s why we are taking a lead role in the development of a Stewardship Code in New Zealand, and have engaged strongly on the XRB’s climate-related disclosures guidance.
From taxonomies to disclosures, to climate reporting and stewardship codes; we are clearly witnessing the articulation of standards of leading practice for our sector.
In addition, we are seeing governments recognising the significant role that finance and investment has to play in delivering on the big ambitious sustainability and climate policy settings. The recent State of Environment report in Australia and National Adaptation Plans in New Zealand both recognise the economic and finance dimensions that are critical to managing a transition to a low carbon, sustainable, and prosperous future. But only if done right.
At first glance, this can appear to be a messy time – unending streams of acronyms, codes and regulations – overwhelming, duplicative and difficult. But step back, and these elements form the essential building blocks that can help us to achieve the promise of responsible investment, one that deploys more capital to support a clean transition in a credible manner.
What we are seeing is a new approach emerging.
We are now just around the corner from a world whereby all large companies are reporting regularly and consistently on how they are managing sustainability issues, and their approach to climate change risk. Whereby the activities of those same companies can be clearly defined – through the emergence of taxonomies – as to whether they are contributing to a sustainable future, or eroding that.
Whereby investors can then bring together that data to more simply assess risk, to target investments to cleaner industries, and then clearly measure their own progress towards net zero – and transparently communicate this to consumers. Where an investment product can then be more simply and objectively verified as delivering on its commitments, through fund labelling like our Responsible Investment Certification Program. This will result in a time in the not too distant future whereby consumers will be able to objectively assess one investment product, superfund or KiwiSaver option against another on their sustainability credentials, based on fact, not marketing spin.
It is for this future vision that RIAA both welcomes these developments, and is working with our members to step up and engage in these processes. We’re doing this with government and policy makers, on both sides of the Tasman, as well as internationally, in a manner that strengthens the regulatory settings and hardwires standards of responsible investment that align to delivering sustainability outcomes.
Simon O’Connor, CEO, Responsible Investment Association Australasia.