CPA Australia has proposed the introduction of more stringent regulations concerning the naming and marketing of managed investment and superannuation products to better protect consumers from misleading sustainability claims.

In its submission to a Commonwealth Treasury consultation focused on sustainable investment labels, the organisation expressed concerns that ambiguous or unverified claims could erode consumer confidence.

The accounting body advocated for reforms that would allow Australian investors to make informed choices regarding products that reflect their ethical and sustainability priorities.

CPA Australia ESG [environmental, social and governance] lead Patrick Viljoen highlighted the importance of safeguarding investors from misleading sustainability claims, often referred to as greenwashing, and called for stricter compliance requirements for the entities making these claims.

Viljoen said: “The market is awash with products that claim to be socially responsible. Consumers could understandably assess such claims as fair and accurate, under the assumption that they are underpinned by a robust regulatory framework that permits them.

“We need compliance obligations to catch up with consumer expectations.”

Viljoen acknowledged the government’s efforts to create a clearer product labelling framework, which would assist consumers in making investments in sustainable products and address the issue of greenwashing.

“Investing in the most ethical products should not be as challenging as it is. Key to fixing this should be the introduction of standardised labelling, along with mandatory disclosures to substantiate the marketing claims being made,” Viljoen added.

“This should apply to all investment products marketed as ‘responsible’, ‘sustainable’, ‘ethical’, ‘green’ or similar, and require upfront and ongoing disclosures about how sustainability is genuinely and transparently incorporated into investment processes.”

In collaboration with Chartered Accountants Australia and New Zealand, CPA Australia urged the government to consider international examples of sustainable financial product labelling reforms.

The submission pointed to regulations in the UK and US that require at least 70% of the gross value of a product’s assets to be invested in line with the stated sustainability objective, along with specific guidelines for naming and marketing.

Viljoen concluded: “Any reforms should ensure it becomes easier for Australians to make more ethical investment decisions and increases the accountability on product issuers.

“If a product promotes socially responsible investments, it should be clear exactly what this means and where investors’ money will be going.”