ASIC Chair says ESG disclosure expectations will only increase, reiterates ASIC's continued focus on tackling greenwashing ahead of the expected introduction of new requirements
- ASIC Chair Joe Longo has reiterated that ASIC's continued focus on:
- maintaining high disclosure standards
- helping to strengthen and improve standards of ESG governance and disclosure (including through tackling greenwashing)
- preparing for 'the broader evolution of the ESG space'
- A key message in Mr Longo's address is that ASIC expects ESG disclosure/governance expectations will continue to shift, but that the regulator does not see this as an excuse for failure to meet existing disclosure obligations and/or failing to prepare for/position for change.
- Mr Longo also warned companies against responding to increased regulatory scrutiny/monitoring by ceasing all voluntary ESG disclosure ('greenhushing'), which ASIC considers to be another form of greenwashing
Our key takeaways from Australian Securities and Investments Commission (ASIC) Chair Joe Longo's 5 June 2023 keynote address to the AFR ESG Summit are below.
Mandatory climate disclosure is 'only the beginning, not the end'
The starting point for Mr Longo's address is that 'ESG is not a trend' but, but rather 'the next stage in a long series of important moves towards greater transparency and higher disclosure standards' that are/will continue to evolve, especially when it comes to 'environmental' reporting.
On the expected evolution of climate/sustainability reporting, Mr Longo underlined that uncertainty around future requirements is no excuse for poor disclosure in line with existing requirements, or for failure to prepare for upcoming changes. Mr Longo said:
'The ‘E’ of ESG will likely expand over time, with mandatory disclosures around climate being only the beginning, not the end… changes in ESG reporting tomorrow don’t excuse complacency today. Looking ahead to uncertainty doesn’t excuse inaction. Some firms are making good progress, but we cannot let standards slip as we prepare for the major changes ahead'.
Against this background, Mr Longo spoke about three areas on which ASIC is currently focused. Namely:
- good governance – ensuring ESG is integrated into existing governance frameworks – in preparation for upcoming changes
- tackling greenwashing (including greenhushing)
- preparing for the growth in sustainable financing.
Mr Longo emphasised that 'good disclosure depends on good governance'.
He observed that while it is 'reassuring' that many larger companies are already engaging on ESG, there is no room for complacency.
In light of the expected introduction of mandatory, internationally aligned disclosure requirements in this country, and the global push towards disclosure into 'new' ESG areas (eg impact on nature/biodiversity), Mr Longo said that companies 'need to be thinking about' integrating ESG into their governance frameworks/structures.
In order to prepare for upcoming changes, Mr Longo suggested companies should be asking themselves the following 'three fundamental questions':
- 'How can sustainability and financial reporting work together to function as an integrated whole?'
- 'How can we ensure that marketing and advertising teams work with the legal and risk teams to ensure cohesion around sustainability-related claims?'
- '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?'
Greenwashing (including greenhushing)
Mr Longo reiterated that greenwashing remains a key enforcement priority for ASIC (and for regulators globally) and that ASIC is actively monitoring for, and stands ready to take action to address, instances of suspected greenwashing. Mr Longo pointed to ASIC's recent report (REP 763, summarised) detailing the main issues identified across the 35 greenwashing actions taken by the regulator during the period 1 July 2022 to 31 March 2023 in support of this.
Mr Longo also reiterated that the regulator has 'further surveillances and investigations afoot'.
Mr Longo also touched on the issue of 'greenhushing' – where companies cease all voluntary ESG-disclosure out of purported concern about the regulatory response to such disclosures. Mr Longo made clear that ASIC does not consider this response to be justified, and in fact considers it to constitute another form of greenwashing. Mr Longo said:
'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'.
Preparing for the 'biggest change in the financial services sector in a generation'
Mr Longo described the growth in sustainable finance as 'the biggest change in the financial services sector in a generation'.
In light of this global shift, Mr Longo said ASIC is 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' and that ASIC 'continues to be positioned to meet the challenges ahead'. This includes for example, through participation in the Council of Financial Regulators Climate Working Group (domestically) and as a member of the International Organisation of Securities Commissions’ Sustainable Finance Taskforce (internationally).
Guidance for boards
- ASIC has released an information sheet (INFO 271) offering guidance on how to avoid greenwashing. MinterEllison has also produced a guide on the topic: Navigating the rising tide of greenwashing - Insight - MinterEllison
- Ahead of the introduction of new mandatory ISSB-aligned sustainability reporting requirements in Australia, the AICD, in conjunction with Deloitte and MinterEllison, have produced a new guide outlining what is known about the forthcoming requirements, the questions yet to be determined by government, and the steps boards can take now in preparation.