(Bloomberg) -- The Australian government is planning to introduce ESG labeling requirements, as it seeks to fight greenwashing and steer more capital into credible sustainable activities.

Authorities will establish labels and disclosures for investment products marketed as “sustainable,” including funds run by the superannuation industry, after a public consultation in early 2025, according to a sustainable finance framework released on Wednesday. 

The plan also calls for large businesses and financial firms to incorporate climate disclosures based on the Australian Accounting Standards Board’s guidelines, which are due to be finalized in August.

“Disclosure is very important because it forces people to think and consider about what is their climate risk exposure, what are the areas of weakness they have,” said Martijn Wilder, chief executive officer of climate advisory firm Pollination Group. Australian pension funds and other traditional investors are still grappling with what sustainable finance entails, he said in an interview in Singapore.

The government’s plan puts Australia on track to follow Asian financial hubs Singapore and Hong Kong in building ESG requirements. The European Union is the world leader in creating a regulatory framework for ESG, though some of its rules are now under review after a consultation revealed shortcomings.

The total size of sustainable funds across Australia and New Zealand was $30 billion as of end March, according to Morningstar Inc. estimates. Fund managers and companies operating in Australia’s ESG market should expect more active policing of their claims than in some other jurisdictions, said Jono Broome, head of APAC client advisory at Morningstar Sustainalytics.

 “A key point of difference appears to be the vigor with which the Australians regularly clamp down on greenwashing,” Broome said by email.

Read: Singapore Takes Lead Over Hong Kong in Asia Green Finance Battle

The Australian government has said it will study “labeling developments” in the US, UK and the EU, and is targeting 2027 for the rollout of its rules. Its framework entails a number of elements including a taxonomy, as well as best-practice guidelines for companies disclosing transition plans.

The roadmap “sets a high benchmark for the APAC region,” said Jean Woo, managing partner of Ashurst’s Singapore unit. “It is detailed, ambitious and sets specific measurable timelines.”

 

--With assistance from Sheryl Tian Tong Lee.

(Adds Morningstar comment in seventh paragraph.)

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