FMA sharpens expectations on ethical investing claims

The Financial Markets Authority – Te Mana Tātai Hokohoko (FMA) has invited feedback on its draft disclosure guidance for financial products with ethical characteristics.

The new guidance would replace the FMA's 2020 Disclosure Framework for Integrated Financial Products and guidance contained in the 2022 thematic review of managed fund documentation.

The FMA's Ethical Investing Disclosure Guidance draft is open for consultation until 7 November 2025.

 

Key takeaways:

• Investor demand and market integrity: Ethical investing is growing in popularity. Investors want products that align with their values, and clear, substantiated disclosures are essential to maintain trust.
• No substantive new obligations: The proposed guidance largely repeats the guidance it replaces, but provides more context, and examples, which are useful.
• Scope of guidance: The guidance is not limited to statutory disclosure documents, and should be considered when producing any external communication, including websites, reports and marketing material.
• Integrated financial products out: The FMA has dropped the term "integrated financial products" and adopted "ethical investments".

 

Four key fair dealing principles

The FMA sets out four key principles designed to guide issuers in meeting their fair dealing obligations under the Financial Markets Conduct Act 2013 (FMC Act). For each principle, the FMA explains its practical application and provides illustrative examples of good practice as well as potential breaches.

1. Claims need to be clear

Claims need to be clear and easily understood by investors, so they have the information they need to make an informed decision about whether the product is aligned with their ethical values. Issuers should avoid vague, arbitrary or imprecise statements, and use plain language rather than relying on technical jargon.

This is tested against the overall impression it gives to target investors.

• Misleading example: A MIS manager’s ESG policy excludes investments in companies generating any revenue from the production of nuclear power. The fund’s policy suggests full exclusion of nuclear-related companies, but in practice only excludes those directly owning nuclear plants – while still investing in suppliers, creating a misleading impression for investors.
• Good practice: An issuer states in its ESG policy that it screens for companies directly involved in what it has identified as undesirable business activities. The issuer clearly defines “direct involvement” using industry classification systems and states that exclusions do not apply to companies indirectly involved, such as suppliers.
2. Claims need to be substantiated

Issuers must have reasonable grounds for any ethical claims made about a financial product at the time the claim is made. These claims should be supported by evidence and verifiable facts. Substantiation may include external review or assurance services (such as certifications or endorsements through membership schemes), and / or measurement and reporting.

• Misleading example: A managed investment scheme states in its responsible investment policy that it is transitioning all managed funds toward a net zero carbon footprint by 2050 and will report annually on progress. However, five years after making this claim, it has not provided any progress reports, and the carbon footprint remains unchanged.
• Good practice: A managed investment scheme publishes an annual report, distributed to investors, that tracks its progress toward net zero. The report includes graphs and outlines actions taken by the manager. Although the carbon footprint has not yet changed, the manager transparently explains the strategy and how it is expected to lead to future reductions.
3. Messages need to be consistent

Issuers should ensure that messaging, including any exceptions or qualifications, is consistent and accurate, and does not create a misleading impression. This includes maintaining consistency in terminology, tone, and content across textual, audio, and visual formats.

Issuers should take particular care when directing investors to third-party websites for additional information. It is important to clarify what information is provided on those sites and why. Key details should not be omitted from the issuer’s own materials with the expectation that third-party sources will fill in the gaps.

• Misleading example: An issuer’s investment policy states that it excludes investments in companies “involved in the extraction of fossil fuels”. However, across its marketing platforms its advertising clearly states that it “does not invest in fossil fuels”. In reality, it invests in companies that own petrol stations, which contradicts its marketing and creates a misleading impression.
• Good practice: The issuer’s advertising is consistent with its investment policy. It states “We limit investment in fossil fuel extraction” and provides a link to its ethical investment policy. The policy clarifies that the issuer excludes companies deriving revenue from fossil fuel extraction but allows investment in those involved in fossil fuel distribution.
4. Third party involvement needs to be effectively managed

If issuers of ethical products outsource related services to third parties (such as data providers, assurance or investment managers), they should ensure those parties can deliver services to the required standard. Issuers retain responsibility for fulfilling their obligations under the financial markets legislation.

Issuers should disclose the extent to which the underlying responsible investment policy is under their control. They must ensure there are no discrepancies between their stated policy and the approach taken by third parties in practice.

• Misleading example: A fund’s bond and equity portfolios were screened for excluded activities using different exclusion rules. The equity portfolio screens for weapons manufacturers but the bond portfolio does not. However, on the issuer's website, the issuer states that all of its investments were screened for weapons manufacturers. The fund is invested in weapons manufacturers through its bond investments, but this is not disclosed to investors.
• Good practice: When changing data providers, an issuer compares the differences in the screening methodology employed by the data providers, and updates its ethical investment policies to ensure they align with the third-party data provider’s screening practices.

 

FMA's stance on enforcement

The guidance shows that the FMA is taking a firm, but educative approach to enforcement in the context of ethical investment disclosures. While the guidance is not a definitive statement of the law, it clarifies the FMA's view of how the fair dealing and disclosure obligations in the FMC Act apply to ethical investments.

In the guidance, the FMA states that it will consider exercising its regulatory powers where it believes that:

• conduct or advertising is materially misleading or deceptive under the fair dealing provisions;
• any disclosure is materially false or misleading, or likely to mislead;
• advertising for products or services is likely to confuse investors; and
• there is a material omission or breach under the offer disclosure provisions.

 

Our views

The FMA’s guidance is a clear restatement of the law applying to ethical investments. It’s encouraging to see the move away from the somewhat unintuitive “Integrated Financial Products” label, with a sharper focus on the common challenges issuers face when offering ethical investments (such as screens, impact, stewardship, and reliance on third party data providers).

The inclusion of detailed examples provides much-needed transparency on what may constitute misleading conduct, helping issuers understand what might trigger enforcement action. We encourage issuers to review the examples contained in the guidance not mentioned in this article.

We query whether the references to climate-related disclosures and financial advice should be removed from the guidance, given they operate under different (and evolving) regimes and are subject to separate frameworks and standards.

DLA Piper can support issuers in reviewing their ethical investment disclosure documents, marketing collateral, and governance frameworks to ensure compliance with the FMC Act. Please contact us if you would like assistance with the submission process or advice on regulatory expectations more generally.