1 00:00:03,840 --> 00:00:06,930 Jennifer Duke: Welcome to the Fear and Greed Business Interview. I'm Jennifer 2 00:00:06,930 --> 00:00:10,320 Jennifer Duke: Duke. We talk a lot about greenwashing on this podcast, 3 00:00:10,530 --> 00:00:14,400 Jennifer Duke: and recently it's become a major focus for regulators. In 4 00:00:14,400 --> 00:00:17,910 Jennifer Duke: the last year alone, the Australian Securities & Investments Commission has 5 00:00:17,910 --> 00:00:22,290 Jennifer Duke: commenced action against Mercer, Vanguard, and Active Super for allegedly 6 00:00:22,290 --> 00:00:26,999 Jennifer Duke: providing misleading information over the ESG credentials of some investments. 7 00:00:27,360 --> 00:00:30,090 Jennifer Duke: At the same time, a Senate inquiry is underway into 8 00:00:30,090 --> 00:00:33,900 Jennifer Duke: greenwashing and Treasury is doing consultation on a series of 9 00:00:34,109 --> 00:00:38,850 Jennifer Duke: standardized, internationally- aligned requirements for disclosing climate- related financial risks 10 00:00:38,850 --> 00:00:42,210 Jennifer Duke: and opportunities. Clearly, there's a lot happening in this space 11 00:00:42,210 --> 00:00:45,059 Jennifer Duke: and businesses need to be ready. Persia Navidi is a 12 00:00:45,059 --> 00:00:48,570 Jennifer Duke: Partner at Hicksons Lawyers specializing in climate and cyber risk. 13 00:00:48,570 --> 00:00:49,860 Jennifer Duke: Persia, welcome to Fear and Greed. 14 00:00:50,400 --> 00:00:51,990 Persia Navidi: Thank you. Thanks so much for having me. 15 00:00:52,469 --> 00:00:55,440 Jennifer Duke: So, Persia, starting with the basics here, what does greenwashing 16 00:00:55,440 --> 00:00:56,430 Jennifer Duke: actually look like? 17 00:00:57,150 --> 00:01:02,160 Persia Navidi: Yes, great starting question. Greenwashing, it's effectively when a company 18 00:01:02,220 --> 00:01:06,720 Persia Navidi: represents that it's taking certain steps, doing certain things regarding 19 00:01:07,200 --> 00:01:12,029 Persia Navidi: the climate or regarding sustainability when in actual fact that's 20 00:01:12,029 --> 00:01:15,090 Persia Navidi: not happening, or it's not happening to the extent that 21 00:01:15,090 --> 00:01:18,810 Persia Navidi: was represented to the market. It's really as simple as 22 00:01:18,810 --> 00:01:22,530 Persia Navidi: that. It's, for example, a company says that it's not 23 00:01:22,530 --> 00:01:25,650 Persia Navidi: investing in certain types of business or sectors such as 24 00:01:25,650 --> 00:01:30,029 Persia Navidi: oil and gas when potentially they are, and that's misleading 25 00:01:30,150 --> 00:01:32,010 Persia Navidi: the market when it comes to their green credentials. 26 00:01:32,819 --> 00:01:35,550 Jennifer Duke: I can imagine why that's concerning to investors who are 27 00:01:35,550 --> 00:01:37,950 Jennifer Duke: out there, and I did mention some cases that ASIC 28 00:01:37,950 --> 00:01:40,348 Jennifer Duke: is running at the moment. What are they alleging in 29 00:01:40,349 --> 00:01:42,240 Jennifer Duke: the matter involving Vanguard in particular? 30 00:01:43,500 --> 00:01:46,139 Persia Navidi: Yes, so there are three on foot at the moment. 31 00:01:46,139 --> 00:01:49,290 Persia Navidi: Vanguard was the second proceeding that was commenced by ASIC 32 00:01:49,560 --> 00:01:53,280 Persia Navidi: against a company for greenwashing this year, the first one 33 00:01:53,280 --> 00:01:57,210 Persia Navidi: being against Mercer. The Vanguard case is an interesting one 34 00:01:57,210 --> 00:02:02,940 Persia Navidi: because, effectively, it's being alleged that Vanguard made false and 35 00:02:02,940 --> 00:02:06,599 Persia Navidi: misleading statements and engaged in conduct that could potentially mislead 36 00:02:06,600 --> 00:02:09,720 Persia Navidi: the public when it represented that all of its securities 37 00:02:09,780 --> 00:02:14,010 Persia Navidi: in the Vanguard Ethically Conscious Global Aggregate Bond Index Fund, 38 00:02:14,190 --> 00:02:17,399 Persia Navidi: that's a bit of a mouthful, but when that fund 39 00:02:18,059 --> 00:02:22,709 Persia Navidi: was screened against certain ESG criteria. So, they claimed that 40 00:02:22,709 --> 00:02:26,970 Persia Navidi: that index excluded issuers with business in a range of 41 00:02:26,970 --> 00:02:31,410 Persia Navidi: industries, like I just mentioned, including fossil fuels, but ASIC 42 00:02:31,500 --> 00:02:36,090 Persia Navidi: alleges that the ESG screen and the ESG research that 43 00:02:36,270 --> 00:02:40,169 Persia Navidi: was conducted wasn't completed for a big portion of issuers 44 00:02:40,169 --> 00:02:42,570 Persia Navidi: of bonds in the index and therefore the fund in 45 00:02:42,570 --> 00:02:47,010 Persia Navidi: total. So, it was said that a significant portion of 46 00:02:47,010 --> 00:02:51,179 Persia Navidi: investor funds were actually invested with fossil fuels and activities 47 00:02:51,179 --> 00:02:54,660 Persia Navidi: linked to oil and gas exploration. It said that that 48 00:02:54,660 --> 00:02:58,439 Persia Navidi: was misleading of the market, and that's the basis of ASIC's 49 00:02:58,440 --> 00:03:00,358 Persia Navidi: proceedings against Vanguard. 50 00:03:01,110 --> 00:03:03,360 Jennifer Duke: And as you mentioned, that Mercer one was first off 51 00:03:03,360 --> 00:03:06,540 Jennifer Duke: the rank. What was the issue with Mercer that ASIC raised? 52 00:03:07,470 --> 00:03:10,500 Persia Navidi: In that one, there was a Sustainable Plus investment option 53 00:03:10,830 --> 00:03:15,719 Persia Navidi: that Mercer operated, and Mercer represented that funds invested with 54 00:03:15,719 --> 00:03:20,399 Persia Navidi: that option weren't invested in companies involved in or deriving 55 00:03:20,400 --> 00:03:24,630 Persia Navidi: profit from the production or sale of alcohol, gambling, or 56 00:03:24,630 --> 00:03:27,900 Persia Navidi: the extraction or sale of carbon- intensive fossil fuels. It 57 00:03:27,900 --> 00:03:31,559 Persia Navidi: was said by ASIC that Mercer didn't ensure that all 58 00:03:31,559 --> 00:03:35,129 Persia Navidi: asset classes in the fund were excluded from investments in 59 00:03:35,129 --> 00:03:38,040 Persia Navidi: those sectors, and so as a result, it's alleged by 60 00:03:38,040 --> 00:03:41,220 Persia Navidi: ASIC that there were false and misleading representations made to 61 00:03:41,220 --> 00:03:45,780 Persia Navidi: the public. So, again, it's a similar trend. We're seeing 62 00:03:45,870 --> 00:03:50,280 Persia Navidi: organizations in particular where people's money is being invested. So, 63 00:03:50,280 --> 00:03:54,899 Persia Navidi: listed companies obviously, where it's important to investors to know where their funds are going and if 64 00:03:56,160 --> 00:03:58,830 Persia Navidi: a certain product or a certain type of investment or 65 00:03:58,830 --> 00:04:02,700 Persia Navidi: a fund is being represented as targeting those who are 66 00:04:02,700 --> 00:04:05,490 Persia Navidi: ethically conscious or want to be sustainable, and that's what 67 00:04:05,490 --> 00:04:08,789 Persia Navidi: is being communicated to investors at the time of investment, 68 00:04:09,240 --> 00:04:11,729 Persia Navidi: and then it turns out that actually that's not the 69 00:04:11,730 --> 00:04:16,170 Persia Navidi: case and their money is going elsewhere, that's where ASIC is 70 00:04:16,170 --> 00:04:19,860 Persia Navidi: stepping in and bringing proceedings against these companies. 71 00:04:20,790 --> 00:04:23,669 Jennifer Duke: So, if ASIC is successful with their proceedings, what kind 72 00:04:23,670 --> 00:04:25,020 Jennifer Duke: of penalties can we expect? 73 00:04:26,639 --> 00:04:30,839 Persia Navidi: At the moment, these cases are all still in the courts. For in terms 74 00:04:30,870 --> 00:04:33,540 Persia Navidi: of the relief that's being sought, it's quite similar across 75 00:04:34,290 --> 00:04:37,830 Persia Navidi: the proceedings that have been commenced. They're seeking top declarations 76 00:04:37,830 --> 00:04:43,349 Persia Navidi: from the companies, pecuniary penalties, adverse publicity orders, and injunctions 77 00:04:43,349 --> 00:04:47,369 Persia Navidi: as well against these organizations. Very much, these cases are 78 00:04:47,369 --> 00:04:51,029 Persia Navidi: test cases as well. We haven't seen these sorts of 79 00:04:51,029 --> 00:04:54,210 Persia Navidi: greenwashing cases in the past. Sure, we've seen cases of 80 00:04:54,210 --> 00:04:58,469 Persia Navidi: misleading and deceptive conduct, that's not new, against organizations, but 81 00:04:58,710 --> 00:05:01,860 Persia Navidi: it will be interesting to see how these cases progress. 82 00:05:02,160 --> 00:05:03,899 Persia Navidi: And as I said, we've got the three on foot, 83 00:05:03,900 --> 00:05:07,110 Persia Navidi: so just ones to watch closely to see what the 84 00:05:07,110 --> 00:05:10,260 Persia Navidi: extent of any penalties on these companies will be. 85 00:05:10,860 --> 00:05:12,810 Jennifer Duke: Stay with me, Persia. We'll be back in a minute. 86 00:05:18,928 --> 00:05:22,738 Jennifer Duke: I'm speaking to Persia Navidi, Partner at Hicksons Lawyers. And 87 00:05:22,740 --> 00:05:25,380 Jennifer Duke: why do you think ASIC's taken such a big interest 88 00:05:25,380 --> 00:05:26,490 Jennifer Duke: in this issue right now? 89 00:05:28,020 --> 00:05:31,500 Persia Navidi: I think it's been on ASIC's radar for a while, 90 00:05:31,620 --> 00:05:36,809 Persia Navidi: greenwashing and the potential for misleading the market and how 91 00:05:36,809 --> 00:05:40,529 Persia Navidi: to protect investors when it comes to what organizations are 92 00:05:40,529 --> 00:05:44,700 Persia Navidi: saying they're doing with their green credentials. It's something that 93 00:05:44,700 --> 00:05:48,390 Persia Navidi: has been an enforcement action item for ASIC. It's certainly 94 00:05:48,390 --> 00:05:50,339 Persia Navidi: a current action item for them, but it's something that 95 00:05:50,339 --> 00:05:54,359 Persia Navidi: they've been indicating that they're looking at very closely for 96 00:05:54,360 --> 00:05:58,740 Persia Navidi: well over 12 months. They released their Info Sheet 271 97 00:05:59,219 --> 00:06:03,150 Persia Navidi: in 2022, which set out steps on how to avoid 98 00:06:03,240 --> 00:06:06,510 Persia Navidi: greenwashing, and that was before they commenced any proceedings and 99 00:06:06,510 --> 00:06:09,178 Persia Navidi: that was before they issued any infringement notices as well. 100 00:06:09,178 --> 00:06:12,419 Persia Navidi: So, there have been indications from ASIC that they are 101 00:06:12,420 --> 00:06:14,909 Persia Navidi: looking at this very closely. They want to ensure the 102 00:06:15,389 --> 00:06:18,900 Persia Navidi: integrity of the market is upheld, so it's not a 103 00:06:18,900 --> 00:06:22,410 Persia Navidi: secret that this is a target for them, and I 104 00:06:22,410 --> 00:06:26,909 Persia Navidi: think it's just an example of them following through on 105 00:06:26,910 --> 00:06:28,859 Persia Navidi: what they've said that they're going to be targeting and 106 00:06:28,860 --> 00:06:31,950 Persia Navidi: taking action on. Another reason as well is this is 107 00:06:31,950 --> 00:06:36,448 Persia Navidi: not just limited to Australia. Organizations across the world are 108 00:06:36,449 --> 00:06:40,800 Persia Navidi: being targeted, whether it's by private litigants or regulators, for 109 00:06:40,800 --> 00:06:45,300 Persia Navidi: greenwashing. Australia is up there, though. In terms of actual 110 00:06:45,300 --> 00:06:49,380 Persia Navidi: litigated cases, we're second only to the US. So, it's 111 00:06:49,380 --> 00:06:53,159 Persia Navidi: not a new thing here in Australia, climate- related litigation, 112 00:06:53,279 --> 00:06:55,469 Persia Navidi: and it's something that is quite prevalent. 113 00:06:56,850 --> 00:06:59,609 Jennifer Duke: Another part of this is that Treasury consultation that I 114 00:06:59,610 --> 00:07:03,690 Jennifer Duke: mentioned earlier around disclosures for climate- related financial risk, and 115 00:07:03,690 --> 00:07:05,849 Jennifer Duke: part of the goal here is clearly to bring Australia 116 00:07:05,849 --> 00:07:08,520 Jennifer Duke: into line with some global standards. Can you explain what's 117 00:07:08,520 --> 00:07:11,219 Jennifer Duke: happening elsewhere in the world and why this matters to 118 00:07:11,219 --> 00:07:12,480 Jennifer Duke: businesses and to investors? 119 00:07:13,650 --> 00:07:20,220 Persia Navidi: Yes, absolutely. So, we've had this year the long- awaited International 120 00:07:20,220 --> 00:07:26,489 Persia Navidi: Sustainability Standards Board release its comprehensive global baseline of sustainability 121 00:07:26,490 --> 00:07:29,909 Persia Navidi: disclosures. This has been a long time coming. It's come 122 00:07:29,910 --> 00:07:33,360 Persia Navidi: out of COP27, which was the Conference of Parties back 123 00:07:33,360 --> 00:07:36,810 Persia Navidi: in, it was 2021 if I'm remembering correctly. So, this 124 00:07:36,870 --> 00:07:40,679 Persia Navidi: body was established effectively to develop that global baseline for 125 00:07:40,679 --> 00:07:45,150 Persia Navidi: sustainability disclosures. And earlier this year, in June of this 126 00:07:45,150 --> 00:07:50,070 Persia Navidi: year, they released two disclosure standards. One on disclosure of sustainability- 127 00:07:50,190 --> 00:07:53,670 Persia Navidi: related financial information and another one on climate- related disclosures. 128 00:07:54,750 --> 00:07:58,440 Persia Navidi: Very briefly, the standards, they aim to require companies to 129 00:07:58,440 --> 00:08:02,760 Persia Navidi: disclose information about their sustainability- related and climate- related risks 130 00:08:02,849 --> 00:08:06,749 Persia Navidi: and opportunities that's going to be useful for investors, shareholders, 131 00:08:06,750 --> 00:08:09,600 Persia Navidi: and others who rely on their financial reports when they're 132 00:08:09,600 --> 00:08:13,920 Persia Navidi: making investment decisions. So, quite a big deal. The reason 133 00:08:13,920 --> 00:08:16,860 Persia Navidi: being that at the moment, you're looking at Australia, there's 134 00:08:16,860 --> 00:08:20,940 Persia Navidi: no one standard for companies to refer to or rely 135 00:08:20,940 --> 00:08:24,150 Persia Navidi: on when they're reporting on their climate- related financial risks 136 00:08:24,600 --> 00:08:29,010 Persia Navidi: or making certain disclosures. There's the TCFD, which is the 137 00:08:29,010 --> 00:08:32,610 Persia Navidi: Task Force for Climate- Related Financial Disclosures. That provides a 138 00:08:32,610 --> 00:08:35,759 Persia Navidi: guideline, but you can't say that that is the only 139 00:08:35,759 --> 00:08:39,208 Persia Navidi: method of reporting that you should be referring to. There's 140 00:08:39,210 --> 00:08:41,639 Persia Navidi: no one set standard, so the fact that this has 141 00:08:41,639 --> 00:08:45,840 Persia Navidi: now come out globally is good news. It's great news 142 00:08:45,840 --> 00:08:49,380 Persia Navidi: for companies. The impact it has on Australia is yet 143 00:08:49,380 --> 00:08:53,340 Persia Navidi: to be seen, but you mentioned that consultation paper. Treasury 144 00:08:53,340 --> 00:08:56,490 Persia Navidi: released, it was December of 2022 that they released their 145 00:08:56,490 --> 00:09:00,179 Persia Navidi: first consultation paper, and the second one was released shortly 146 00:09:00,179 --> 00:09:03,990 Persia Navidi: after these global standards were released, and that one, it 147 00:09:03,990 --> 00:09:08,550 Persia Navidi: sets out the intention of Australia introducing some sort of 148 00:09:08,550 --> 00:09:13,679 Persia Navidi: mandatory reporting framework, at least for largest listed companies and 149 00:09:13,770 --> 00:09:18,240 Persia Navidi: unlisted companies and financial institutions, by 1 July of 2024. 150 00:09:19,440 --> 00:09:23,100 Persia Navidi: That's the intention there. That's what's been communicated. So, companies 151 00:09:23,100 --> 00:09:27,030 Persia Navidi: need to be looking very closely at how their reporting 152 00:09:27,510 --> 00:09:30,030 Persia Navidi: need to be across what's in that consultation paper as 153 00:09:30,030 --> 00:09:34,590 Persia Navidi: well, and it includes proposals such as companies need to 154 00:09:34,590 --> 00:09:38,550 Persia Navidi: disclose information about any climate- related targets if they have 155 00:09:38,550 --> 00:09:42,150 Persia Navidi: them, and their progress towards these targets. They need to 156 00:09:42,150 --> 00:09:46,530 Persia Navidi: disclose their material Scope 3 emissions from the second reporting 157 00:09:46,530 --> 00:09:50,070 Persia Navidi: year onwards. So, again, that that's one that organizations have 158 00:09:50,070 --> 00:09:52,590 Persia Navidi: struggled with a little bit, Scope 3, because it's more 159 00:09:52,590 --> 00:09:56,040 Persia Navidi: difficult to capture that information. But again, the fact that 160 00:09:56,040 --> 00:09:59,280 Persia Navidi: it suggests in the proposal that that will only need 161 00:09:59,280 --> 00:10:02,670 Persia Navidi: to be reported on after the second reporting year indicates 162 00:10:02,670 --> 00:10:04,410 Persia Navidi: there's going to be a period of grace as well. 163 00:10:04,410 --> 00:10:07,919 Persia Navidi: It's not going to be something that straight away organizations 164 00:10:07,920 --> 00:10:10,379 Persia Navidi: are going need to report on that. There's always a bit 165 00:10:10,379 --> 00:10:12,960 Persia Navidi: of a grace period with any new legislation. 166 00:10:13,770 --> 00:10:16,080 Jennifer Duke: I think everyone would be thankful for that grace period, 167 00:10:16,080 --> 00:10:18,690 Jennifer Duke: but clearly there is an awful lot of regulation and 168 00:10:18,690 --> 00:10:22,410 Jennifer Duke: scrutiny on the way. Just finally, any tips for companies 169 00:10:22,410 --> 00:10:24,690 Jennifer Duke: to prepare now when there's so much to get ready 170 00:10:24,690 --> 00:10:25,828 Jennifer Duke: for for when the rules change? 171 00:10:26,790 --> 00:10:29,670 Persia Navidi: Yes. I think if you haven't started already, you should 172 00:10:29,670 --> 00:10:32,458 Persia Navidi: be starting now in terms of having some sort of 173 00:10:32,490 --> 00:10:37,559 Persia Navidi: framework for disclosing climate- related financial risks. Regulation or laws 174 00:10:37,650 --> 00:10:42,389 Persia Navidi: on this are coming. Australia is in some ways behind, because 175 00:10:42,389 --> 00:10:45,059 Persia Navidi: it has been introduced over in the UK, it's been 176 00:10:45,059 --> 00:10:48,630 Persia Navidi: introduced in New Zealand. In the US, there's a proposal that's 177 00:10:48,630 --> 00:10:51,990 Persia Navidi: been with the SEC for a little while now. So, we're 178 00:10:51,990 --> 00:10:55,050 Persia Navidi: catching up, which is a really good thing, and organizations 179 00:10:55,050 --> 00:10:58,500 Persia Navidi: just need to be across what it is that their obligations are 180 00:10:58,500 --> 00:11:02,309 Persia Navidi: likely to be. What does that consultation paper say? These 181 00:11:02,309 --> 00:11:06,389 Persia Navidi: are the types of things that we see in the work that we do in terms of 182 00:11:06,389 --> 00:11:10,050 Persia Navidi: preparing. Preparation is key. Being overprepared is not going to 183 00:11:10,050 --> 00:11:10,830 Persia Navidi: be an issue. 184 00:11:10,830 --> 00:11:10,890 Jennifer Duke: Yeah. 185 00:11:11,880 --> 00:11:15,030 Persia Navidi: So, just being across what the obligations are, being across 186 00:11:15,030 --> 00:11:17,520 Persia Navidi: what regulators are doing as well. And I think it's 187 00:11:17,520 --> 00:11:20,969 Persia Navidi: really important for directors in particular to be mindful of 188 00:11:20,969 --> 00:11:25,500 Persia Navidi: this, and also their insurers. Directors and officers insurance also, 189 00:11:25,530 --> 00:11:29,190 Persia Navidi: this is something that it's long tail. Companies are making 190 00:11:29,190 --> 00:11:33,090 Persia Navidi: net zero statements now about the future, and if that 191 00:11:33,090 --> 00:11:36,300 Persia Navidi: doesn't eventuate or if it comes out that ultimately that 192 00:11:36,300 --> 00:11:39,030 Persia Navidi: wasn't correct or it was potentially misleading, that's when the claims will start to roll in. 193 00:11:40,830 --> 00:11:43,650 Persia Navidi: And the final point I think that's important to get 194 00:11:43,650 --> 00:11:46,830 Persia Navidi: across is that the consultation paper, which includes proposals for 195 00:11:46,830 --> 00:11:49,590 Persia Navidi: what these laws will look like, it actually includes a 196 00:11:49,590 --> 00:11:53,309 Persia Navidi: civil penalty regime as well. So, that's going to be 197 00:11:53,309 --> 00:11:57,210 Persia Navidi: important from a liability and litigation standpoint. Directors need to 198 00:11:57,210 --> 00:11:59,699 Persia Navidi: be mindful that that's also going to be included. So, 199 00:12:00,090 --> 00:12:03,328 Persia Navidi: I think the key message is at the moment, there's 200 00:12:03,330 --> 00:12:06,030 Persia Navidi: no one guideline, but these laws are looking to be 201 00:12:06,030 --> 00:12:09,238 Persia Navidi: introduced, which is good news, hopefully welcome news, because there'll 202 00:12:09,240 --> 00:12:12,509 Persia Navidi: be one standard that companies can look to when it 203 00:12:12,509 --> 00:12:15,930 Persia Navidi: comes to reporting and just start preparing now. 204 00:12:16,889 --> 00:12:19,020 Jennifer Duke: I think there's a lot there for businesses to take away 205 00:12:19,020 --> 00:12:21,780 Jennifer Duke: from those suggestions. Persia, thank you so much for talking 206 00:12:21,780 --> 00:12:22,500 Jennifer Duke: to Fear and Greed. 207 00:12:23,220 --> 00:12:25,170 Persia Navidi: Absolute pleasure. Thank you very much for having me. 208 00:12:25,559 --> 00:12:28,589 Jennifer Duke: That was Persia Navidi, Partner at Hicksons Lawyers. This is 209 00:12:28,590 --> 00:12:31,410 Jennifer Duke: the Fear and Greed Business Interview. Join us every morning 210 00:12:31,410 --> 00:12:33,899 Jennifer Duke: for the full episode of Fear and Greed, Australia's best 211 00:12:33,900 --> 00:12:38,010 Jennifer Duke: business podcast. I'm Jennifer Duke, economics correspondent at Capital Brief, 212 00:12:38,040 --> 00:12:40,170 Jennifer Duke: and filling in for Sean Aylmer. Have a great day.