USA: Asset managers must increase the scrutiny of climate impact and sustainability disclosures, a panel discussion heard, as regulators in the Asia-Pacific region prepare to take action against companies that engage in greenwashing.

According to Rebecca Mikula-Wright, CEO of the investors' group Asia Investor Group on Climate Change (AIGCC), "greenwashing has been a concern in Australia for some years and has recently been translated into regulatory action."

The Australian Securities and Investments Commission will receive an additional A$4.3 million (US$2.8 million) last Friday, according to an announcement made by Australia's treasurer, Jim Chalmers, in an effort to combat false claims about the environment.

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This comes shortly after the Australian Senate's investigation into greenwashing in the entire economy. According to Mikula-Wright, the inquiry is widely regarded as a prelude to legislative changes that would protect consumers and reform advertising standards. Submissions to the inquiry are being accepted until June. She added that a draught anti-greenwashing bill is anticipated to become law in South Korea this year.

Exaggerated claims of environmental benefits that cannot be supported are referred to as "greenwashing." This week, the AIGCC released a guide to aid Asian asset managers, banks, institutional investors, and regulators in understanding the expanding phenomenon and how to avoid it.

There is "clear consensus" that green finance initiatives should be properly regulated in Hong Kong, according to a policy circular released by the Securities and Futures Commission (SFC) in August of last year. This is done to maintain market integrity and investor protection.

The guide, which was co-written by the nonprofits ClientEarth and AIGCC, claimed that from two "climate-washing" legal cases and complaints submitted to oversight bodies in the world in 2016 to 16 in 2021.

Such expansion took place at the same time that the green economy, as measured by the market capitalization of pertinent publicly traded companies, increased by about 160% to US$6.6 trillion. The study used information gathered by scientists with the Climate Social Science Network.

According to Mikula-Wright, if left unchecked, greenwashing hinders the transition to a sustainable climate, skews financial markets, and reduces capital allocated to green projects. Additionally, reputational harm might result.

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According to Elaine Ng, an associate director in the SFC's international affairs and sustainable finance division, one of the main causes of greenwashing is the absence of internationally recognised definitions and standards.
This will be addressed when the International Sustainability Standards Board (ISSB) publishes two sets of global baseline disclosure standards for climate risks and opportunities and sustainability issues by June.

Ng argued that regulatory action alone is insufficient. For regulators to publicly state, "From A to Z, this is greenwashing," Ng said, "will be a horrific situation." Because financial innovations occur frequently, "we will never be able to do that."

Because greenwashing can occur outside of the regulatory framework, investors need to look beyond regulations, according to David Smith, senior investment director at UK-based asset manager Abrdn.

Investors have a responsibility to put in the work to investigate claims made by companies and perform due diligence, he said. "We can't accept everything as it is."

For instance, he said, asset managers like Abrdn already have the tools necessary to question businesses about the veracity of their claims regarding climate resilience.

According to Joe Phelan, Asia-Pacific executive director of the World Business Council for Sustainable Development, other initiatives to standardise emissions reporting are also enhancing the credibility of data related to climate change.

To enable the standardised exchange of carbon emissions data among businesses, the Partnership for Carbon Transparency introduced a set of technical specifications in January.

According to Phelan, the initiative, which has the support of the council, aims to make it possible for all organisations, regardless of the technology solution employed, to exchange emissions data in a secure environment.

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It aims to increase the reporting frequency and data quality of the so-called Scope 3 emissions that customers and suppliers of businesses emit throughout the supply chain. This effort is widely regarded as onerous and will take businesses years to catch up with. Under the ISSB, disclosure of this information will be required.

The Hong Kong Stock Exchange has proposed mandating Scope 3 disclosures for ESG reports for fiscal years beginning on or after January 1, 2026.