TAIPEI (Taiwan News) — As far back as 2021, Taiwan’s Financial Supervisory Commission (FSC) announced disclosure rules and supervisory principles for environmental, social and governance (ESG) funds issued by Securities Investment Trust Enterprises (SITEs).
A SITE in Taiwan is a business issuing beneficiary certificates for raising a securities investment trust fund; uses a securities investment trust fund in the investment in securities and its related products; accepts consignment of discretionary account investments; and other relevant businesses as approved by the Securities & Futures Commission of the Ministry of Finance (SFC). Essentially, a SITE is a fund manager.
The disclosure rules are set in place to standardize the common format of information disclosure by ESG funds. The measures were taken to strengthen the integrity of the prospectus on ESG investment policies.
In 2022, the FSC issued a set of “Supervisory Principles for Review of Offshore ESG FundDisclosures” in order to ensure more complete disclosures of ESG investment policies in investor information summaries of offshore ESG funds. And also more consistent supervisory treatment of onshore and offshore funds.
The FSC’s actions were related to the unfortunate international practice of greenwashing. In its basic form, greenwashing uses manipulation and misinformation to garner consumer confidence around a company's ESG claims.
It includes false, misleading, vague, or irrelevant claims regarding a company's environmental or social impact. Greenwashing includes unverifiable claims, distraction from other facts, claiming to be “less bad,” and downright lying.
Taiwan’s investors are increasingly interested in ESG criteria for evaluating business because higher ESG performance correlates with higher returns, lower risk, and long-term business sustainability. Investors are also attracted to ESG funds as they are seen as emanating from companies that utilize resources sustainably, are sympathetic to the well-being of employees, stakeholders and society and are committed to clean governance.
This interest by Taiwanese investors in ESG funds ultimately drives the greenwashing concerns of the regulators. Protecting the rights and interests of Taiwanese investors, particularly individual investors, is a duty that the FSC takes very seriously. The same should apply to any prudent global regulator.
It is always important for banks, financial institutions, asset managers and all other providers of financial services to keep abreast of both domestic and international trends. This helps the market self-regulate and as Taiwan’s financial institutions make inroads outside of Taiwan, they need to understand the international markets in which they are operating.
So a recent action by the FSC’s Australian equivalent, the Australian Securities & Investments Commission (ASIC) is relevant and perhaps provides a good reminder of the dangers of greenwashing.
ASIC recently announced that it has launched a court action against superannuation fund Active Super. It alleges the fund made misleading ESG related claims to members, by investing in companies in sectors that it had claimed to eliminate from its holdings.
In a statement, the regulator outlined statements made by Active Super on its website and in social media postings claiming the fund “eliminate(s) investments that pose too great a risk to the environment and community” — providing tobacco, nuclear weapons, oil tar sands and gambling as examples. Active Super also said that it had added Russia to its list of excluded countries following the invasion of Ukraine.
According to the ASIC allegations, however, the fund had 28 holdings that exposed members to these areas between February 2021 and June 2023, including holdings in casino operator Skycity Entertainment Group, tobacco company Amcor, and Russian oil and gas companies Gazprom and Rosneft. The regulator added that Active Super continued to have holdings in Russian securities as of June 30, 2023, despite making representations in May 2022 that it would stop investments in Russian companies.
ASIC noted that there is much competition among funds for new investors, and funds seek to attract members with promises their investments will not be exposed to certain industries. ASIC reiterated that when making these claims, funds must have evidence to back their claims and ensure they are not promising exclusions that they cannot guarantee.
The announcement marks ASIC’s third greenwashing penalty proceeding launched so far this year. Greenwashers beware, the regulators are watching.
