The Financial Markets Authority (FMA) has released draft guidance for ethical investment disclosure (Guidance) for consultation. It’s been a long time coming. And it’s long, with a plethora of examples and in-depth discussion of four key principles. Don’t be fooled by the title - there’s more to it than just ‘ethical’ investment disclosure considerations. And it’s not just limited to disclosures. The Guidance extends to any external communication, including websites, reports and marketing material.

In this Financial Law Insight, we take a look at where the Guidance has come from, what we like about it, where market participants might like to focus their submissions, and what it might mean in practice. Our conclusion? In the immortal words of Kermit the Frog, it’s not easy being green. But once finalised, the Guidance should help!

Origins – the Integrated Financial Products Disclosure Guidance

Back in December 2020 the FMA launched the concept of an ‘Integrated Financial Product’ in its Disclosure Framework for Integrated Financial Products (IFP Guide). This is currently the primary regulatory reference guide for those charged with developing disclosure documentation for financial products that incorporate non-financial factors (e.g., ESG or SRI considerations) into their investment processes or performance metrics.

Like the latest Guidance offering, the IFP Guide is principles-based. And like the Guidance, it also sets out some fairly demanding expectations of providers with extensive compliance consequences for those wanting to play in this space. It’s also half the length.

The FMA doubled down on the expectations set out in the IFP Guide in July 2022 with the heavily criticised Integrated Financial Products: Review of Managed Fund Documentation thematic review report (IFP Report). That really put the cat amongst the pigeons in bringing to life the expectations set out in the IFP Guide. And not in a good way.

We raised concerns at the time. In our view, the FMA was imposing an overreaching regulatory burden on providers with its expectations as to how it wanted to see the principles expressed in the IFP Guide applied in practice. Kermit would have to change his song. It was no longer just a case of it’s not easy being green – those claiming to be green found themselves in a veritable minefield of needing to unpack and substantiate in excruciating detail what they meant by their claims. Or face the wrath of the FMA.

To be fair, in our experience the FMA was pretty constructive in working through the findings in its IFP Report with affected providers. Disclosures were modified, substantiations of claims more extensively articulated, and consequences added. While responding to the IFP Report placed a significant additional regulatory burden on already stretched compliance and marketing teams, by and large providers sucked it up and got on with things.

But the murmurings continued. The IFP Report and its aftermath reinforced the misgivings many had with the IFP Guide and what it might mean. The more balanced 2024 follow up report Ethical Investing Disclosure Highlights gave us a hint that something might be brewing to help those grappling with the challenge of talking about being green. The Guidance has been long awaited, albeit with some trepidation as to what new regulatory expectations might be given airtime in the second coming.

Initial impressions? Largely positive. While there is a lot to get through, we found the Guidance to be logically set out and concepts well-explained. We welcome the use of multiple examples to show what the FMA is really looking for – even if we think a few of those examples need some work. Or removal.

One thing that will no doubt be universally celebrated is the retirement of the ill-conceived term ‘Integrated Financial Product’. It was always an odd one. An FMA invention that never really struck a chord with the market and simply added another layer to the plethora of terms, background noise and confusion that is a feature of this space.

So that’s an immediate win. What else is there to like, and what else do we think the FMA could have done better?

‘Ethical’ investment?

Hats off to the FMA for picking a terminology winner and running with it. Rather than inventing another bespoke term for the Guidance, the FMA has picked ‘ethical’ as the catchall term to cover everything it had previously sought to cover with its IFP Guide.

All the other terminology options have their fans. Responsible investing, sustainable investing, green (sorry, Kermit!), social, transition, ESG – the list goes on. And the Guidance supports their continued use, where they make sense. It’s just that one term had to be selected for the purposes of the Guidance to rule them all, and ‘ethical’ was the winner.

In our view, the approach taken by the FMA in the labelling of the Guidance is sound. It is not saying that everything must be judged through an ethical investment lens. ‘Responsible’ and ‘sustainable’ and the like all fall within the scope of the Guidance.

There is a well-articulated explanation at the outset clarifying the rationale in selecting that term, and the fact that it doesn’t limit the financial products covered. Being ‘ethical’ is not taken in its narrowest moral high-ground sense. Rather, for the purposes of the Guidance, it should be interpreted in its broadest sense. The concept captures any instance where an issuer seeks to incorporate value judgements as part of its investment strategy. Importantly, no boundaries are prescribed as to what is or is not an ‘ethical’ investment product.

And the Guidance is not just about financial products that have been labelled green or responsible or some variant of that, or that have ESG-type considerations as their main marketing driver. Instead, the scope of financial products falling within its influence is expanded to all those that incorporate non-financial performance value judgements into their investment strategies. The Guidance explicitly recognises that this goes beyond simply ethical marketing.

Those who have congratulated themselves in the past for escaping regulatory scrutiny over their ‘ethical’ claims by not promoting their products using any of the ethical variants had better think again. Any representation made as to the ‘ethical’ characteristics of an offering is caught, no matter how quietly the representation has been made.

There is even a warning that you had better not be too quiet about any green tinges in your investment approach. Kermit’s main concern in his song was that being green meant you blended in and no-one noticed you – the frog’s variant of green-hushing. But when it comes to ethical investment practices anything that is material to investor decision-making should be disclosed. According to the Guidance, it may be misleading to omit disclosure of your ethical biases.

Four principles of Ethical Investment Disclosure

In a major shuffle of the deck chairs from the IFP Guide, the Guidance is divided into four major sections, covering off the four principles of ethical investing it has distilled. That is a major structural shift from the rather clunky structuring of the IFP Guide, that was based on statutory requirements (fair dealing, disclosure expectations, enforcement).

We like this change. It reinforces the fact that this is principle-based guidance, without having regulatory requirements dictating the way these principles should be observed.

The principles themselves are well-articulated and logical. Yes, there is a lot of detail to unpack, especially when it comes to the FMA’s expectations of honouring the principle of clarity, but at least there are only four. And like the four horsemen of the apocalypse, there should be no escaping them:

1. Claims need to be clear
2. Substantiate your claims
3. Messages need to be consistent
4. Third-party involvement is effectively managed

The principles themselves should come as no surprise. They are relevant to all external communications (i.e. not just formal disclosure documentation, and whether or not the relevant product offering involves ethical considerations).

The need for claims to be clear is explained in the most extensive detail, before the FMA seemed to run out of ethical puff a little when it came to explaining the other three principles. That’s fine. In many ways, the need for clarity is the one principle to rule them all, so should be given the most space.

There are many elements to each of the principles, and we won’t go through them in any detail here. But they are worth spending some time considering and, in some cases, challenging.

Where we have the most misgivings is in the discussion included regarding substantiation. It’s not that we have any concerns in principle with the need to substantiate claims. It’s just a question of striking a sensible balance in the lengths you need to go to in what you disclose. How much of that substantiation is really best left behind the scenes to avoid crowding out the main disclosure messages with undue noise?

That question gets even more interesting when you consider section 26 of the Financial Markets Conduct Act. That provision says that the prohibition on making unsubstantiated representations does not apply to representations made in a disclosure document (e.g. a PDS) or a register entry. Is the principle requiring claims to be substantiated then an attempt to rewrite the law?

The examples

A feature of the Guidance is the number of examples of alleged misleading disclosure and good practice that is included. 41 all up. That’s more than one per page. The sector has often asked for examples in regulatory guidance to help them understand how the FMA expects them to apply that guidance in practice. So be careful what you ask for.

In principle, we like the use of examples. They just need to actually be useful. Some of those included in the Guidance are great. Some are not. And some seem to be plain wrong or misleading, or appear against the wrong principle. Like we have been saying, it isn’t easy being green. Seems it is also not easy explaining how to disclose being green.

If market participants with an interest in this space do nothing else in response to the Guidance, reviewing the 41 examples and providing constructive feedback to the FMA to call out the good, the bad, and the plain ugly would be useful.

Interestingly, the introduction claims the Guidance is not intended to be a definitive statement of the law as it relates to ethical investing. That raises the question of what standing the examples actually have. And is this a case of ‘but wait – there’s more’? Is the Guidance just an expression of some of the FMA’s thinking in this space, but not all? As a law firm, we routinely encourage our clients to reserve their position wherever possible. But for regulatory guidance, where market participants are seeking certainty as to what they should be doing, such a disclaimer seems misplaced.

What’s missing and what shouldn’t be there?

The Guidance feels pretty comprehensive. Despite some misgivings we have about certain aspects, we think it is in reasonably good shape. And a vast improvement on the IFP Guide, in more than just name!

A curiosity is that in calling out industry bodies that have developed standards or taxonomies issuers should follow in making ethical claims, the FMA has failed to name the Responsible Investment Association Australia (RIAA). That’s surprising. RIAA is a highly regarded player in the responsible, ethical and impact investing space across Australia and New Zealand, with a significant membership. Many providers follow RIAA’s certification processes. Naming them as an example of an organisation the FMA recognises in this space seems the right thing to do. A line needs to be drawn somewhere, but that seems a glaring omission.

The Guidance briefly touches on climate-related disclosures. Briefly being the operative word. According to the Guidance, it ’may be of some help to CREs that want to avoid greenwashing in their climate disclosures’. Is that all?

To us, that leaves the status of the Guidance when it comes to climate-related disclosures far too open-ended. Either back yourselves and assert that the principles set out in the Guidance apply to all disclosures, including those required of Climate Reporting Entities (and why wouldn’t they?) or expressly carve out its application to help reduce the already burdensome disclosure obligations faced by CREs. Just don’t make those obligations even more uncertain.

Another section of the Guidance that feels undercooked is the brief section at the end discussing financial advice about ethical investing. That feels very much like it has been tacked on as an after-thought, with a fairly superficial run through of the regulatory duties of financial advisers when it comes to ethical investing financial advice. That’s a minimal value add.

There are some major alarm bells for financial advisers buried in the brief comments provided. There’s also some very unhelpful comments that effectively just amount to directing financial advisers to comply with their legal duties, without offering anything practical on point.

On balance, we think the section on financial advice should be removed altogether. This is a piece of guidance focused on disclosure, after all. It is not a given that financial advisers will even think to review it, let alone thumb their way through to the end. But if financial advice is going to be included, then at least make a decent fist of it.

The green wrap

We applaud the FMA for the strides it has made in producing the Guidance. It is well-written and has a logical, well-set out flow to it. It was pleasing (but not a surprise) to see the principles-based approach taken. Expressly articulating the key principles and basing the Guidance around them is the perfect way to make that principles-based rhetoric real, rather than just talking about it and burying the principles in the body of the text.

As noted in this Financial Law Insight, there are quite a few points of detail in the Guidance on which the FMA can and should be challenged. But in our view those points are largely at the margin. In our view, most of the heavy lifting required to finalise the Guidance relates to the examples scattered throughout the Guidance and perhaps a little more precision when referring to underlying statutory obligations.

The consultation closes on 7 November 2025. We encourage all those with an interest in ethical disclosure, even those who feel it is actually easy being green, to submit. Full engagement by affected market participants in the consultation process on a piece of work as significant as the Guidance is critical to the efficiency of our disclosure regime, and the FMA has a good record of responding to submissions on its consultations. Unlike the non-consulted release of FMA’s ill-considered piece on shadow insider trading we commented on last month, the Guidance is being put through a proper process. The FMA should be commended for that, as well as for the extent of thought that has gone into it.

And when submitting, don’t forget it’s not just about pointing out the things you don’t like in the Guidance. There’s some good content in there. Reinforcing that good content through the submission process is the best way of ensuring it remains. Engaging constructively in the consultation process is an easy thing issuers can do to help make it less difficult being green.

Start a conversation

If you would like to discuss any aspect of the Guidance and its impact on your business, or would like assistance with submitting in response to the FMA’s consultation, please contact David Ireland on +64 4 498 0840, Catriona Grover on +64 4 498 0816, Campbell Featherstone on +64 4 498 0832, Jenni Rutter on +64 9 914 7251, or Mark Schroder on +64 9 375 1120 or email the team at bankingandfinancialmarkets.nz@dentons.com