Regulatory pressure has seen some NZ fund managers abandon marketing campaigns featuring ethical subject matter amid a tighter focus on ‘integrated’ investment products by the Financial Markets Authority (FMA).
In a summary of observed ethical (and related) investment practices published last week, the FMA notes some advertising materials talking up such strategies did not match “the contents of the SIPO [statement of investment policy and objectives] and responsible investing policy”.
“We engaged with managers, which led to advertising being voluntarily withdrawn and reporting being improved to make it clearer what practical steps managers have taken towards their claims and targets,” the regulator says.
The FMA also found fault (and some good points) with ethical investment disclosures after reviewing offer documents of 10 managers.
Furthermore, some funds carrying “sustainable labelling or claiming third-party certification” offloaded problematic stocks after a query from the regulator.
But in the “majority of instances” where the FMA found a potential clash between ethical exclusionary theory and practice, the manager “was able to provide adequate explanation”.
The NZ regulatory modus operandi of using “engagement, education and feedback” to steer the industry on ethical (sustainable, responsible, ESG etc) investing behaviour contrasts with its Australian counterpart, which has claimed a few high-profile ‘greenwashing’ scalps of late
Last month the Australian Securities and Investments Commission (ASIC) revealed it had embarked on almost 50 greenwashing actions over the 15 months to June 30 with successful civil law suits against Mercer, Vanguard and Active Super setting the scene.
However, the FMA says it would “consider exercising our regulatory powers” over greenwashing breaches where:
- conduct or advertising is clearly misleading or deceptive under the fair dealing provisions;
- any disclosure is materially false or misleading, or likely to mislead;
- advertising for products or services is likely to confuse investors; or,
- there is a material omission under the offer disclosure provisions.
As well as issuing an early warning on ESG labelling, the NZ regulator also tackled the other big abbreviation of the times last week with a new research paper on artificial intelligence (AI) in the local financial services sector.
The FMA found all 13 of the firms it surveyed for the study either were, or were considering, using AI tools in their businesses.
“A notable finding is the sector-wide approach to AI which is focused on being cautious. Organisations are assessing and seeking to address the risks before adopting or actively using AI in business practices,” the paper says.
“… Most respondents have already been able to realise the benefits of incorporating AI into their operations, with others expecting to see benefits within the next 12 months, underscoring the technology’s rapid impact.”
Stuart Johnson, FMA chief economist, says in the report that the regulator remains “technology-neutral and pro-innovation”.
“We believe that New Zealanders should have access to the same technological advancements as those in other countries,” Johnson says. “We want to see firms leverage AI to improve consumers’ experiences in financial markets and services.”
The FMA is likewise trialling the use of AI for its own purposes, the study says.
“We have launched several pilot initiatives to explore AI applications, ensuring compliance and security through clear internal guidance and training.”
The regulator has also scheduled an industry roundtable for later this year to explore AI use cases and risks in the NZ financial services sector.