The Federal Court today ordered Vanguard Investments Australia to pay a $12.9 million penalty for making misleading claims about environmental, social and governance (ESG) exclusionary screens.
These screens were applied to investments in the Vanguard Ethically Conscious Global Aggregate Bond Index Fund.
ASIC Deputy Chair Sarah Court said, ‘This is an important decision and the penalty imposed is the highest yet for greenwashing conduct. Greenwashing is a serious threat to the integrity of the Australian financial system, and remains an enforcement priority for ASIC.
‘Vanguard admitted it misled investors that these funds would be screened to exclude bond issuers with significant business activities in certain industries, including fossil fuels, when this was not always the case.
‘It is essential that companies do not misrepresent that their products or investment strategies are environmentally friendly, sustainable, or ethical. The size of the penalty should send a strong deterrent message to others in the market to carefully review any sustainable investment claims.’
Justice O’Bryan said ‘Vanguard’s contraventions should be regarded as serious. Vanguard’s misrepresentations concerned the principal distinguishing feature of the Fund, being its “ethical” characteristics. Vanguard developed and promoted the Fund in response to market demand for investment funds having those characteristics.
‘By its misleading conduct, Vanguard misrepresented the “ethical” characteristics of the Fund. Approximately 74% of the securities in the Fund by market value were not researched or screened against applicable ESG criteria. Further, Vanguard benefited from its misleading conduct. The misrepresentations enhanced Vanguard’s ability to attract investors to the Fund, and enhanced Vanguard’s reputation as a provider of investment funds with ESG characteristics, as compared to what would have been the case if Vanguard had accurately disclosed the ESG screening limitations and the Fund’s exposure to issuers engaged in the excluded industries.’
The claims were made in a range of public communications, including:
- 12 product disclosure statements
- A media release
- Statements published on Vanguard’s website
- A Finance News Network interview on YouTube, and
- A presentation at a Finance News Network Fund Manager Event which was published online.
Investments held by the Fund were based on an index called the Bloomberg Barclays MSCI Global Aggregate SRI Exclusions Float Adjusted Index. Vanguard had claimed the Index excluded only companies with significant business activities in a range of industries, including those involving fossil fuels, but has admitted that certain securities in the Index and the Fund were from issuers that were not researched or screened against applicable ESG criteria.
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Background
Today's outcome follows ASIC's successful greenwashing outcome in its civil penalty proceeding against Mercer Super where the court ordered Mercer to pay a civil penalty of $11.3 million. See 24-173MR.
As of 26 February 2021, the total funds or assets under management of the Vanguard Ethically Conscious Global Aggregate Bond Index Fund was over $1 billion.
The Fund is a registered managed investment scheme, of which Vanguard is the Responsibility Entity and the Investment Manager. The Fund comprises the ETF, AUD Hedged, and NZD Hedged classes of units.
ASIC’s Information Sheet 271 How to avoid greenwashing when offering or promoting sustainability-related products (INFO 271) provides information for responsible entities of managed funds and super fund trustees about how to avoid greenwashing when offering or promoting sustainability-related or ethical products and investments.
ASIC’s Report 791 ASIC’s recent greenwashing interventions outlines ASIC regulatory interventions made between 1 April 2023 and 30 June 2024 in relation to greenwashing concerns.
ASIC’s Moneysmart website has a range of tools and resources to help people understand money and how to manage it. Find out more about what ESG investing is and how it works.
Original MR: ASIC wins first greenwashing civil penalty action against Vanguard 24-061MR.
