Nine in 10 advisers concerned about greenwashing: RIAA

A recent survey by the Responsible Investment Association Australia (RIAA) found that 94% of advisers have concerns about greenwashing or misleading sustainability claims made by investment products.

RIAA's survey spoke with Australian-based individual financial adviser members and advisory groups to capture practical, client-facing insights into the sustainable investment product labelling regime.

RIAA membership and engagement manager Ethan Kusch noted the research found advisers play an important role in helping ascertain the right labelling regime as they see how real people understand sustainability concepts, how products align with those expectations, and how greenwashing manifests in practice.

"Financial advisers sit as an absolute key piece to that, connecting mum and dad investors, high net worth individuals, family offices with places to use capital," Kusch said.

Earlier in the year, Treasury opened a consultation on the labelling of sustainable financial products, with a particular focus on retail offerings. It covered the scope of the labelling system, disclosures, thresholds for labelling, and certain requirements.

The majority of advisers strongly supported restrictions on sustainability-related product labels, noting they would find it helpful for certain terms to be restricted or requiring criteria, particularly labels like "sustainable" and "impact", which advisers believe should require specific standards to use.

However, advisers emphasised while clarity and guardrails are essential, a labelling regime that is too restrictive could discourage product innovation and stressed that the system must be practical for consumers and advisers.

The main challenges advisers highlighted were lack of standardised definitions, poor disclosure practices, misleading product names, products not matching client preferences and insufficient reporting.

"Clearly, trust is an issue when it comes to being able to have confidence that a product that's being recommended is true to label," Kusch said.

He also highlighted advisers are approaching responsible investment differently, where some firms have built dedicated capabilities and frameworks, others are still working out where responsible investment fits into client conversations.

"You've got established firms that might have 50 or more advisers... You might be seeing those firms building out structured education in their responsible investment capability for their advisers," he said.

"It might be an individual adviser that's running their own practice [and] naturally advice is client-led, so where you've got the demand, you've probably got more impetus to go out and seek it yourself, rather than at a large firm who is seeing that demand more generally and choosing to educate their advisors that way."