Australia’s first greenwashing case is here. Chances are, it won’t be the last.

Sascha: [00:00:03] From Equity Mates media. This is The Dive. I'm your host, Sascha Kelly. The Australian Securities and Investments Commission asset Fisher has just brought forward its first ever greenwashing case in Australia. It accused Mercer superannuation of misleading customers about its sustainable plus fund, one of its many superannuation investment options. The sustainable plus options were marketed as suitable for members who are described as deeply committed to sustainability because they excluded investments in companies involved in carbon intensive fossil fuels, alcohol production and gambling. But ASIC's alleges that's far from what Mercer actually did. So while for now these are just accusations, it could be the tip of the iceberg when it comes to a crackdown on greenwashing in Australia. The Australian competition watchdog recently completed a sweep of companies environmental claims and they found 57% of companies they looked at made misleading statements about their climate action and other behaviour. It's Friday, the 10th of March, and today I want to know the extent of the allegations against myself and are we about to discover this is just the tip of the iceberg? They need to talk about this today. I'm joined by Darcy Cordell. Darcy, welcome to The Dive. 

Darcy: [00:01:29] Sascha, thanks for having me. 

Sascha: [00:01:30] I'm always fascinated by greenwashing cases because I do think it seems to be What's greenwashing for you? What's ethical for me? Such vast variety as in what those answers could be. So it's a difficult one to kind of pinpoint, isn't it? 

Darcy: [00:01:43] Yeah, it is. And that's why we got an expert today. I spoke with Hannah Wootton from the Australian Financial Review and she told us all about this case. So first question for you, Hannah. What actually is greenwashing?

Hannah: [00:01:57] Top line, It's essentially if you've got a business, a company or what have you made some promises on how green or sustainable or ethical its products are but doesn't deliver. 

Audio Clip: [00:02:08] Do you know what your buying does, what it promises? Well, calls to stop so-called greenwashing are growing. 

Hannah: [00:02:15] So this could be through their marketing. It could be making claims about their own practices, for example, saying they're going to net zero or in the case of superannuation, as you say, in this case, it can be claims about their investment strategy. 

Darcy: [00:02:27] And greenwashing is in focus because of the increasing popularity of sustainable and ESG investment products. How much has this sustainable investment space actually grown over the past decade or so? [00:02:39][11.2]

Hannah: [00:02:39] Oh, it's absolutely booming. It's hard to put a set number on it because what you view as sustainable is sort of inherently subjective. So what one sort of group that measures these things says is an ethical investment and other one might not. I read last week that the Responsible Investment Association of Australasia says that this investment market will increase 20% in 2021 to take it to a record $1.5 trillion. So whatever metric you throw at it, that's still very big. [

Darcy: [00:03:12] Yeah, it is really interesting to see what some people say is ethical, others don't. What some people say is sustainable, others don't. And Tesla's a case that we've seen recently that causes a lot of debate. 

Hannah: [00:03:24] Yeah, and I think that's also where it gets a bit difficult because ESG has become so wrapped up in the idea of what is ethical. And it's easy to forget that, you know, ESG has three limbs and what may be environmentally sound point a Tesla may not be sound from a social sense. So it it really depends on what you're looking at specifically. And to be honest, you'd be doing well to find a lot of investments that tick every box. So it sort of depends on what you prioritise. 

Darcy: [00:03:53] So this is the first time that the Australian Securities and Investments Commission has taken a company to court alleging greenwashing. Can you explain what Mercer Superannuation has been accused of?

Hannah: [00:04:04] Yes, so it touches on a few things that I said can constitute greenwashing. So essentially they've been accused of misleading customers and members about what their sustainable trust fund, which is sort of their formal name for their ethical fund, is actually investing. So when you look at the marketing material around that fund and the information it has on the website, it claims it excludes companies that were involved in carbon intensive fossil fuels and producing alcohol and gambling. But then when ASIC's sort of drilled into where the investments actually were, they had 15 carbon intensive stocks, they had AGL Energy, BHP, Glencore, Whitehaven, Coal, all the big names in the alcohol producing and gambling sectors. They covered 34 companies which included Tabcorp, Carlsberg, Heineken had Crown Resorts, that it had companies that arguably shouldn't be in an ethical fund for more than just gambling activity. So it's in that sense, it's pretty straightforward in that they can say this is what you told consumers. And it seems that was misleading allegedly, because this is where you actually had money.

Darcy: [00:05:18] It's pretty remarkable saying some of those holdings that they have. How have most superannuation responded to these accusations and how do you think that the case might affect their nearly 300,000 members? 

Hannah: [00:05:30] To start with, have to sort of clarify that at this point these are just allegations. But any company, when you ask them about accusations that are in court, sort of cite the fact that it's inappropriate to comment given the cases before the court because there's absolutely no legal restriction on them doing so. It's just a good line. But someone has confirmed that they have cooperated with ASIC's investigation. They've said that they're sort of considering the watchdog's concerns, but yet declined to comment further about the cases before the courts. It's hard to know how this could affect their membership. Of those roughly 300,000, it would be a minority in a sustainable plus fund. And you know, if these accusations stack up, they could get hit with fines. There could be a settlement. But realistically, Mercer Super oversees 27 and a half billion dollars in assets. It's probably not going to be a huge financial hit. There's more of a question, I think, about what this does reputationally to them. 

Darcy: [00:06:30] Market forces recently reported that eight of 11 major super funds, sustainable investment options, were potentially misleading customers. Is Mercer just the tip of the iceberg? 

Hannah: [00:06:41] Oh, yeah, definitely. Sort of. I'd say that having seen the market focus is research, but obviously not doing it myself. But it's not just superannuation funds that are getting stock here. Greenwashing. Been the focus of several regulators, both here and abroad. Talking to Esic, they're also saying that their focus is going to go beyond just what investments these funds are in these funds themselves and making commitments about when they get to net zero across their portfolios and for their businesses themselves. So that's beyond just what the ethical and sustainable options are. There's also another sort of another category of potential greenwashing around how they engage with the coal companies or what have you that they're invested in. There was a bit of football a couple of years ago now from memory for UniSuper, who turned out to be invested in some fossil fuel companies and its members didn't like that. And part of uni super's argument was that they're in a better position to change what that might, how those companies might operate by having a substantial holding and a seat at the table, if you will, than if they just weren't invested. But ASIC has flagged that whether they use that seat at the table as promised and not UniSuper specifically, but funds in general could also be somewhere where we start to see greenwashing cases. But look, the HPC just yesterday flagged that greenwashing was an enforcement priority for them. This year it's clearly something the exec is really looking at and has said that they're working with on it. So I don't think there's any doubt that, yes, there is a lot more to come here. 

Darcy: [00:08:26] We'll be back with more from my chat with Hanna after the break. 

Audio Clip: [00:08:39] Now many of us want to do what we can to slow the effects of climate change. And as a consumer, it means choosing products that are better for the environment. 

Sascha: [00:08:49] Welcome back to The Dive. Today, Darcy is speaking with Hannah Wootton about the allegations of greenwashing against Mercer superannuation. Let's get back to his conversation now. 

Darcy: [00:08:58] So Hannah, this comes in the context of a global crackdown on greenwashing. Recently, the SCC in America included environmental claims in their fund name role. And in Germany, we saw Deutsche Bank's offices rioted over greenwashing claims. Are there any countries that regulate the space better than we do here in Australia? 

Hannah: [00:09:18] The short answer from my limited knowledge is absolutely. There's sort of a there's a couple of factors that play into that. The first is that we need better climate disclosure laws and there's some international standards there that Australia is looking to implement. The Government has put money towards the implementation. There is some debate going on about what final form those take, but the super funds are major tax organisations. Everyone's fairly on board that they want to see the international Sustainability Standards Boards guidelines, which is what binds a lot of overseas countries in force here. When that happens, there'll be much more scope for regulators to enforce greenwashing because it's so it's sort of just how we saw the rise of continuous disclosure laws lead to a lot of cases around, well, not necessarily court cases, but a lot of activity around how boards govern their companies. Once there is a law saying you must disclose these environmental concerns, we will start to see that more. The other thing where overseas courts are often better is that a lot more countries overseas have human rights protections than we do in Australia. We don't have federal ones here. Some states have their own human rights laws, but that's also the prison that we've seen a lot of these cases come through overseas. So that's less regulatory, more litigation. But that is some of those big cases where you wait, you know, you hear of kids or even adult suing a company for the effects that their pollution had on them. For example, they often fall under human rights laws, so that's somewhere else. Australia is a bit behind. 

Darcy: [00:11:10] So that's a bit of the lay of the land around the world with greenwashing and here in Australia. But what are some practical things that we as everyday investors can do if we are worried about the environmental claims being made by fund managers or portfolio companies? 

Hannah: [00:11:24] Well, I suppose the starting point is what I mentioned at the start in that what is environmentally sustainable means different things to different people. So when you're looking for a fund, I think it would be worthwhile to think about what matters most to you in terms of does it matter to you that you are in a fund that doesn't invest in fossil fuels, for example, or do your environmental concerns sit elsewhere? Do you want a fund that proactively invests in biodiversity initiatives, for example? So sort of think about what matters and shop around from there in terms of actually holding your fund to account. This is general, but there are some things that I think can be beneficial. For a start, look at what they're promising. If it's ambiguous, that's often not a good sign. And it's a sign that if they don't publish specifically where they're investing, that can also be a bit of a warning sign. So you should be able to ask your fund for that info. Really, it should be out there already. If you're happy with what they promise, then look at where their investments are and sort of look at their justification. For example, Australian Ethical avoids investments in the gambling industry, but they also have this calculus they do where they say if a company makes a significant positive impact elsewhere and earns less than 10% of its revenue from gambling, it may still invest in it. So try and find out what those investments are and if you're comfortable firstly with what they are and then to the justification, you may want to also look at whether your funds have any positive things. Because I know for me personally it's I don't just want my fund to exclude things I'm not comfortable with. I want it to actively work to support things I do like. This is for young people. This is the most substantial savings pool we have is our super fund. So that could do a lot of sort of talking with my money that my personal finances can't. Then another thing that you can do is just sort of actually look at the return profile and think about does this match what returns others in this space are getting. Like is it comparable or is it probably invested in? Something a bit different if it's massively above or below what you'd expect. ESG investments often have green screens so safe it charges new fees. 

Darcy: [00:13:44] Yeah, some really practical things to take away. Their hard earned things to think about. Thanks so much, Hannah. 

Hannah: [00:13:50] Right. Thanks.

Sascha: [00:13:52] Dorsey. I loved Hannah's really practical suggestions at the end of that interview. I think we always forget about the power that our superannuation can have as younger people. You know, it's a significant portion of money that is ours and we can choose where we want to put it. So some really good suggestions from her there. My other burning question is, I know that these are just allegations, but some of the actions from MUSC seem incredibly blatant. They said no fossil fuel investments, and yet there were 15 companies from the sector right there in the fund, no alcohol gambling companies, yet there were 34 across the two sectors. These aren't one or two slipping through. This is a conscious choice. How did they think they were going to get away with this? 

Darcy: [00:14:37] Yes, I'm going to avoid putting my foot in it here, but it really is pretty remarkable. I think the answer is that there's been very little auditing of these funds in Australian history, really, and there hasn't really been much danger of being called out until now. This is the first greenwashing case brought forward by ASIC in Australia, but I can almost certainly say it's not going to be the last. 

Sascha: [00:15:00] Well, let's leave it there for today, Darcy. Lots of things to think about. We'd love to hear from you, so keep the conversation going. Contact us by email. We're thedive@equitymates.com or follow us on social media. All those links in the show notes right below and hit, follow or subscribe wherever you're listening right now and then you'll never miss an episode again. Thank you to everyone who's given us a five star review. We greatly appreciate it. We read every single one of them and we're going to be back next week. Darcy, thanks for joining me today. 

Darcy: [00:15:31] Thanks, Sascha.