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Australia must adopt internationally recognised ESG standards in order to stamp out greenwashing, says COSBOA.
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COSBOA pushes for global ESG standards to combat greenwashing
23 June 2023
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10 minute read
Addressing the issue of greenwashing will require stricter enforcement of laws against misleading representations and a comprehensive ESG certification framework, according to the Council of Small Business Organisations Australia (COSBOA).
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The ESG framework should align with global standards and be adapted to the local Australian context, COSBOA told the Senate inquiry into greenwashing.
COSBOA said in its submission the practice of greenwashing, where companies misrepresent their environmental responsibility, is on the rise following a surge in businesses endorsing their ESG credentials.
“Small businesses often struggle with challenges such as insufficient information to verify green claims from manufacturers and larger businesses, and a lack of resources to adhere to ESG standards. They require support to combat these issues effectively,” the submission stated.
ASIC noted in its submission there are currently no legislative provisions that specifically prohibit greenwashing.
“Instead, there are general prohibitions against misleading and deceptive statements and conduct,” the corporate regulator said.
“The Corporations Act 2001 (Corporations Act) and the Australian Securities and Investments Commission Act 2001 (ASIC Act) contain general prohibitions against a person making statements (or disseminating information) that are false or misleading, or engaging in dishonest, misleading or deceptive conduct in relation to a financial product or financial service.”
COSBOA said although ASIC has been increasingly focused on greenwashing, demonstrating the global trend towards stricter regulation, it still prioritises market education over enforcement.
The small business advocate said it supports a move towards the government adopting internationally recognised ESG standards such as those from the Sustainability Accounting Standards Board and the Global Reporting Initiative, which could be tailored to the Australian small business context.
ASIC noted in its submission that International Sustainability Standards Board (ISSB) is due to issue finalised standards by 30 June which will set a global baseline for sustainability disclosures.
The ISSB previously published two draft standards for consultation in March last year.
In July 2022, ASIC, alongside members of Australia’s Council of Financial Regulators (CFR), made a submission to the ISSB expressing its support for the objectives of the ISSB and its in-principle support for the adoption of the standards (subject to their final form) as reporting standards in Australia.
Treasury has also been tasked with developing a comprehensive sustainable finance strategy. The strategy will include the introduction of a mandatory, internationally aligned, Australian climate risk disclosure framework, said ASIC.
Treasury completed its first round of consultation on these proposed measures in February 2023, obtaining initial views on key considerations for the design and implementation of climate reporting requirements to be aligned with the ISSB standards.
“The ISSB standards build upon the framework of the taskforce on climate-related financial disclosures (TCFD). To improve transparency, consistency and comparability of sustainability-related disclosures, ASIC has been encouraging listed companies to voluntarily report under the TCFD framework since 2018,” said the corporate regulator.
“ASIC has publicly expressed our support for the shift to mandatory reporting and flagged those entities who are voluntarily reporting under the TCFD framework will be well placed to comply with any future reporting standards. The government’s strategy will also involve the development of new standards or taxonomies for sustainable investment as well as further initiatives to reduce greenwashing and strengthen ESG labelling.”
COSBOA said the government will need to collaborate closely with industry to ensure that Australian ESG standards informed by international ESG principles are adapted to local conditions.
“This approach ensures the creation of efficacious, pertinent, and meaningful guidelines for sustainable business practices,” said COSBOA.
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