Contents
The Financial Markets Authority (FMA) has released proposed guidance to clarify ethical investing disclosure and fair dealing obligations under the Financial Markets Conduct Act 2013 (the Act).
The update will be of particular interest to current (and future) issuers of, and advisers on, financial products that incorporate ethical characteristics, environmental, social and governance (ESG) values or other value judgments as part of the investment process, policy or strategy.
Key changes
These are divided into four themes.
1. Holistic view of ethical investing
The FMA proposes moving away from the ‘Integrated Financial Products’ label as this is not a commonly used term, and instead focusing on the specific characteristics of each product and how it is marketed, to determine whether it is captured as ‘ethical investing’.
It considers that this would better recognise the wide range of ways issuers incorporate value judgments into their investment strategies, and that ethical views may vary among individuals.
2. Ethical investing disclosure principles
Four principles are proposed, each supported by good practice examples and “misleading examples” which the FMA would consider to be “greenwashing”.
Claims need to be clear
- Issuers should ensure ethical investing statements are clear and capable of being easily understood so that investors can make an informed decision.
- The FMA also sets out its expectations in relation to the overall impression created; negative and positive screening; active ownership, targets, measurement and reporting; risks; breach consequences, and changed circumstances.
Claims need to be substantiated
- Issuers need to have reasonable grounds for ethical claims, supported with evidence and facts. Ethical product labels should be reserved for products where ethical characteristics are a significant part of the investment strategy.
- The FMA views good practice on substantiating claims to include external review and assurance services together with measurement and reporting on claims.
Messaging needs to be consistent
- Messaging should be consistent across all platforms, product disclosures and policy documents, with consistent terminology, definitions, tone, and textual, audio or visual content.
Effective management of third-party involvement
- Issuers using third-party services should manage the performance of those third parties and ensure it aligns with the issuer’s own ethical policies.
- Issuers should be satisfied that outsourced services, such as data collection or external assurance or certification, meet required standards, with the extent of any third-party reliance disclosed.
Where third party assurance or certification is used, the issuer should disclose the general nature and scope of the services provided. Linking to where an investor can find out more about the certifier is considered good practice.
3. Importance of overall impression
The overall impression created by statements (including any omissions) from the perspective of the target customer or investor is important, and the matters that can influence or contribute to this are diverse. Along with general factors such as selection of information and the level of detail, use of images, font size, prominence and layout, considerations relevant to ethical investing disclosures include:
- use of ethical product labels
- scope of any negative screening (i.e., excluded investments or applied thresholds) or positive screening (i.e., sectors targeted or applied thresholds)
- extent of any material influence over behaviour exercisable based on ownership
- promised targets, progress, measurement or methodology and reporting
- disclosure of material risks in an ethical investment strategy
- consequences for breaches or failure to achieve intended ethical investment outcomes, and
- any unanticipated, unexpected or unforeseen changes in circumstances.
4. Good practice of financial advisers
Financial advisers are reminded that, when giving advice about options for ethical investment, they must comply with their general duties. These include:
- clearly explaining whether the advice covers all ethical investment options or only a subset, so clients understand the boundaries of any recommendations
- prioritising clients’ interests where there is a conflict of interest with other ethical considerations
- exercising care, diligence and skill when advising on ethical products - understanding the methodologies behind ESG ratings, green bonds or impact funds, and conducting due diligence to ensure recommended products genuinely align with ethical claims and are suitable for the client.
The updated guidance will replace the FMA’s 2020 Disclosure Framework for Integrated Financial Products. See our previous commentary here and the findings from the FMA’s 2022 thematic review of managed fund documentation here.
Our view
The draft guidance recognises the importance of market standards to support investor confidence that ethical values are incorporated into industry practice.
It is unclear, however, how it will mesh with the FMA’s very long-awaited green bond exemption, which is expected to set out specific disclosure requirements for an existing listed issuer to follow in order to issue their first green (or other sustainable) bond under a terms sheet.
Next steps
Consultation on the draft guidance closes on 7 November 2025. Once the guidance is finalised, market participants should review and update their disclosure and practices accordingly.
If you would like to discuss the proposed changes or would like assistance with making a submission, please contact one of our experts.
With thanks to Hye-Song Goo for her assistance in preparing this article.
