Mercer NZ has distanced itself from a ‘greenwashing’ legal stoush that stung the Australian arm of the multi-manager specialist week.
In what is likely to serve as a test case for the fund industry on both sides of the Tasman, the Australian Securities and Investments Commission (ASIC) booked Mercer for making allegedly misleading statements in a range of retail superannuation funds marketed under the ‘Sustainable Plus’ brand.
While Mercer NZ also labels many of its KiwiSaver (and other) funds as ‘Sustainable Plus’, a spokesperson for the group said the investment management here remains separate from the Australian operations.
“The Mercer KiwiSaver Scheme, which includes the NZ Sustainable Plus Funds, is not subject to the ASIC proceeding in Australia,” the NZ spokesperson said. “The manager and issuer of the Mercer KiwiSaver Scheme is Mercer (N.Z.) Limited and these Funds are primarily governed by Mercer (N.Z.) Limited, and managed and implemented by the New Zealand investment team.”
In particular, ASIC has hauled Mercer Australia before the courts after finding the seven Sustainable Plus funds had investments in almost 50 companies involved in fossil fuels, alcohol or gambling despite product descriptions claiming such sectors were excluded.
ASIC alleges that Mercer made statements on its website describing the seven Sustainable Plus investment options as suitable for members who are “deeply committed to sustainability” because they excluded investments in companies involved in carbon intensive fossil fuels.
But the options actually contained 15 companies involved in the extraction or sale of fossil fuels (including AGL and BHP); 15 companies involved in the production of alcohol; and 19 companies involved in gambling (including Aristocrat, Crown and Tabcorp).
Most of the off-label stocks listed in the ASIC release are, indeed, absent from the Mercer NZ KiwiSaver Sustainable Plus High Growth Fund, for example – although two mining companies flagged by the Australian regulator, BHP and Glencore, do appear in the NZ portfolio.
A spokesperson for the Financial Markets Authority (FMA) said the NZ regulator “was aware” of the ASIC move on Mercer Australia but would not comment on any local ramifications.
The ASIC legal case against Mercer Australia is a landmark action in the regulator’s increasingly aggressive policing of greenwashing breaches that including a A$40,000 fine handed to index manager, Vanguard Australia, last December for allegedly misleading investors over exposure to tobacco stocks in one of its funds.
Sarah Court, ASIC deputy commissioner, said in a statement: “This is the first time ASIC has taken an Australian entity to court regarding alleged greenwashing conduct, and it reflects our continuing efforts to ensure sustainability-related claims made by financial institutions are accurate.
“There is increased demand for sustainability-related financial products, and with that comes the growing risk of misleading marketing and greenwashing,” Court said. “If financial products make sustainable investment claims to investors and potential investors, they need to reflect the true position. If investments in certain industries like fossil fuels are said to be excluded, this promise must be upheld.”
The regulator flagged potential action against super funds and investment managers back in October 2022 when, in an appearance before the standing committee on economics, Court said that sustainability issues “matter increasingly to investors” and that firms, entities and trustees “are responding to that interest by making all sorts of claims in order to attract investors”.
“The kinds of things that we’re looking at involve potential misleading or deceptive conduct by various listed entities, super fund trustees and one managed fund responsible entity,” Court said at the time. “These are investigations that are at an early stage at the moment.
“We’re really focusing in on the ‘misleading and deceptive conduct’ part of our consumer protection framework, so looking at statements like claims about wanting to achieve net zero emissions by a particular time, claims about carbon neutrality and claims about an emissions reduction strategy.”
ASIC does think there has been an “uptick” in greenwashing and recently issued an information sheet on it to remind product providers of their obligations. It posed “simple questions” around whether product descriptions are true to label and whether they had a reasonable basis for their targets.
“We need to lift the tide in two ways,” Court said. “One is what will happen with international sustainability standards board, and we think the government is committed to doing consultation around whether or not that should be made mandatory by large listed and financial institutions in Australia. The other is what is required here in the supporting ecosystem to make that happen around consistent labelling, taxonomies and the rest of it.”
With extra reporting from Lachlan Maddock, editor Investor Strategy News (Australia)