ESG Fund Labelling in Australia
Google the Australian managed funds market and you will find products described as sustainable, ethical, green, responsible and ESG-integrated. But the reasoning why these products are the way they are labelled can sometimes only be found deep in a Product Disclosure Statement (PDS) or other fund documentation. On 13 February 2026, the Australian Treasury published a consultation paper on a proposed Sustainable Investment Product Labelling regime, designed to address exactly that problem. With a second consultation now closed and the regime scheduled to commence in 2027, this is a topic that fund managers, superannuation funds and institutional investors should understand sooner rather than later.
This article explains what the proposed regime covers, how it compares to international approaches, and what it means in practice for how sustainable investment products are designed, named and disclosed.
Why a Labelling Regime Now
The case for a labelling regime rests on a straightforward problem: the term “sustainable” – and related terms including “ethical,” “green,” “responsible” and “ESG” – currently carries no legally defined meaning in the context of investment products in Australia. A fund can call itself sustainable regardless of what proportion of its assets are screened, engaged or otherwise aligned with a sustainability objective. That inconsistency makes it difficult for investors to compare the sustainability credentials of different products in any meaningful way.
The Treasury consultation paper acknowledges this directly, noting that the lack of consistency between product issuer claims makes it difficult for investors to compare the merits of different sustainable investment options. The proposed regime sits alongside, rather than replacing, the existing greenwashing provisions in the Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001 and it is not intended to be a defence against greenwashing claims, but to reduce the conditions that make greenwashing easier.
The timing also reflects a broader pattern of fund name changes across the Australian market. Several funds have quietly removed or adjusted sustainability-related terminology from their names in recent years, following increased regulatory scrutiny and the recognition that their underlying investment strategies did not fully support the label. The Vanguard and Mercer greenwashing penalty cases discussed in our earlier article on greenwashing reinforced that scrutiny in practice.
What the Proposed Regime Covers
The proposed regime would apply to financial products that use “sustainable” or similar terminology in their product title or marketing materials, capturing not just fund names but how a product is described in PDS’s, target market determinations and investor communications. The consultation paper proposes that where a product’s name or marketing includes a sustainable or similar term, the product should reflect that objective in its investment portfolio or strategy in a substantive manner. The four core design elements under consultation are scope, disclosure, thresholds and evidentiary standards:
- Scope – the regime is proposed to apply to financial products with an investment component, primarily superannuation investment options and managed investment schemes including exchange-traded funds (ETFs). Products that simply apply whole-of-fund ESG integration or stewardship commitments at the entity level, without making specific sustainability claims at the product level, would not be captured.
- Disclosure – product issuers within scope would be required to provide a consumer-facing disclosure document explaining the sustainable characteristics of the specific product. This may include the fund’s sustainability approach (such as use of exclusions, screening, engagement, impact, transition), key sustainability metrics such as emissions intensity, investment targets and interim milestones, and top holdings with short sustainability descriptors.
- Thresholds – Treasury consulted on whether products should be required to meet a minimum proportion of assets aligned with their sustainability objective which mirrors the approach taken in international regimes. This is one of the more contested design questions, as thresholds can constrain investment flexibility and affect product design.
- Evidentiary standards – issuers would need to be able to substantiate their sustainability claims through documented internal processes, external data sources or recognised industry standards, with appropriate record-keeping.
How Australia Compares Internationally
Two international regimes provide the main points of comparison: the European Union’s Sustainable Finance Disclosure Regulation (SFDR) and the United Kingdom’s Sustainability Disclosure Requirements (SDR).
The EU’s SFDR, which has been in force since 2021, classifies funds into Article 6 (no sustainability claim), Article 8 (products promoting environmental or social characteristics) and Article 9 (products with a sustainable investment objective) categories. It has been criticised for being too complex, with meaningful divergence in how products are classified across member states, and the EU has been reviewing the framework with a view to simplification. Notably, funds classed as Article 8 have faced scrutiny and a significant number have been downgraded from Article 9 classification as standards have tightened.
The UK’s SDR, effective from July 2024, uses a set of named labels (Sustainability Focus, Sustainability Improvers, Sustainability Impact and Sustainability Mixed Goals) each with clear criteria and consumer-facing disclosure requirements. The UK approach has been broadly well received for its clarity and specificity relative to the EU model.
Australia’s proposed regime draws on both, and Treasury has explicitly referenced the UK model as a design comparison. The targeted commencement date of 2027 means Australia will have the benefit of observing how both regimes operate in practice before finalising its own approach.
There are Mainstream ESG Aspects However
One of the more interesting complexities in the labelling debate is what happens as ESG practices themselves become standard rather than distinctive. Proxy voting, stewardship engagement and basic exclusion screens have become common governance practices across a large proportion of the Australian institutional investment market. These were practices that were considered hallmarks of responsible investment a decade ago are now relatively mainstream. If a fund engages in all of those practices but does not position itself as an ESG or sustainable fund, does the labelling regime need to capture it? Probably not.
But the reverse question is more challenging. If a fund applies governance-related practices like engagement, proxy voting, board accountability monitoring, that are now broadly expected of most institutional investors, does that alone justify describing it as an ESG fund? The answer is likely no, but the proposed regime will need to provide clear guidance as the baseline of ESG practice rises across the market. A labelling framework that was designed for a period when any ESG consideration was distinctive will need to evolve as those considerations become standard. The regime’s guidance will need to keep pace with that shift, or risk labels that become progressively less meaningful as the underlying practices become more common.
The Role of Certification, and What a Label Cannot Replace
The Responsible Investment Association Australasia (RIAA) operates a certification program for responsible investment products in Australia. RIAA certification provides an independent assessment that a product meets defined responsible investment criteria, and importantly, many certified funds do not carry ESG or sustainable terminology in their fund name at all. A fund can have strong ESG integration and ethical considerations without advertising that in its title.
This matters for how investors should approach fund assessment. A fund name or label is a useful initial filter, but it is not a substitute for understanding what a fund actually does. Asset allocators, investment consultants and financial advisers should be looking well beyond a fund’s name and reviewing the investment policy statement, understanding how binding any ESG commitments are in practice, assessing the engagement and voting track record, and examining how ESG factors flow through to portfolio construction. The RIAA certification process, ESG rating provider assessments and direct fund manager dialogue each provide information that a name or label cannot.
The proposed labelling regime would improve the quality of information available at the initial filter stage, which is valuable, particularly for retail investors without access to specialist research. It should not, however, be read as reducing the need for deeper due diligence by those with the capability and responsibility to do it.
Our View
The proposed Sustainable Investment Product Labelling regime is a step in the right direction. The absence of consistent standards for sustainability-related fund names and marketing claims has created conditions where investor trust is harder to establish and maintain, and where the distinction between genuinely sustainability-focused products and those making only superficial claims is difficult to assess from the outside.
The regime will need to build in flexibility as the ESG landscape evolves. Parts of ESG, particularly governance-related practices such as proxy voting and stewardship engagement, have become sufficiently mainstream that they no longer distinguish a sustainability-focused product from the broader market. Guidance on what constitutes a substantive sustainability claim will need to keep pace with a market where the baseline continues to rise, or the labels risk becoming progressively less informative.
On the investor side, the key question is not whether a fund carries a sustainability label, but what it does. RIAA certification, engagement and voting records, binding versus aspirational ESG commitments, and the depth of sustainability integration into portfolio construction all matter more than the presence or absence of a term in a fund name. The labelling regime should make initial filtering easier but it should not reduce the incentive for deeper assessment.
Looking ahead, we expect the Australian sustainable investment fund market to evolve in an interesting direction. As AASB S2 data becomes available and climate risk becomes more measurable, we predict the emergence of more funds with an explicit climate change or carbon lens where they are investing in underlying companies that are better positioned for the risks and opportunities presented by a changing climate. That is a more specific and more evidenced basis for a fund label than “sustainable” alone, and it is where we see the more interesting product development happening over the next three to five years.
Sources
- Australian Treasury, Consultation Paper — Sustainable Investment Product Labelling, 13 February 2026, treasury.gov.au
- Australian Treasury, Second Consultation Paper — Sustainable Investment Product Labelling: Policy Design, March 2026, treasury.gov.au
- Clayton Utz, Australia’s Sustainable Investment Product Labelling Regime: What Product Issuers Need to Know, May 2026, claytonutz.com
- Herbert Smith Freehills Kramer, Keeping Up with ESG in Australia, April 2026, hsfkramer.com
- Regulation Tomorrow, Australia’s Proposed Sustainable Investment Product Labelling Regime, March 2026, regulationtomorrow.com
- S&P Global, February 2026 Regulatory Tracker, spglobal.com
- Lexology, Australia’s Sustainable Investment Product Labelling Regime: What Product Issuers Need to Know, May 2026, lexology.com
- Responsible Investment Association Australasia (RIAA), Responsible Investment Certification Program, responsibleinvestment.org
- European Securities and Markets Authority (ESMA), Sustainable Finance Disclosure Regulation (SFDR), esma.europa.eu
- Financial Conduct Authority (FCA), UK Sustainability Disclosure Requirements (SDR), fca.org.uk
- ESG Today, Australia Launches Plans for Mandatory Climate Reporting, Taxonomy, Sustainable Investment Labels, esgtoday.com
Anabranch ESG Advisory provides independent advice on ESG strategy, climate disclosure, and sustainability reporting. The information in this article is general in nature and does not constitute legal or financial advice.
