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Australia's five largest pension funds were not doing enough to push fossil fuel companies toward decarbonisation, activist investor group Market Forces said on Wednesday, arguing their environmental commitments could amount to greenwashing.

The term 'greenwashing' describes exaggerated and misleading claims that suggest an entity are stewards of the environment without real action.

Market Forces said in a new report AustralianSuper, Commonwealth Super Corp, Australian Retirement Trust, Aware Super and AMP, which cumulatively manage more than A$1 trillion ($668 billion) in savings, had failed to "demonstrate effective engagement strategies".

Commonwealth Super Corp, Australian Retirement Trust, Aware Super and AMP did not immediately respond to a Reuters request seeking comment. AustralianSuper declined to comment.

Funds must act to prevent fossil fuel expansion, require polluters take meaningful action on decarbonisation and divest from companies that don't, the report said.

"(Pension) funds relying on active ownership to fulfil their climate commitments but failing to rein in rampant oil and gas expansion plans are greenwashing and exposing themselves to legal action for misleading conduct," Brett Morgan, retirement funds campaigner at Market Forces, said in a statement released along with the report.

Australia's corporate regulator has ramped up action against greenwashing, last month accusing pension fund Mercer Superannuation of misleading members about the sustainability of some of its investment options. (Reuters)