Vanguard Investments Australia has been ordered to pay a $12.9 million penalty for making misleading claims about environmental, social and governance (ESG) exclusionary screens, with the fine the largest imposed to date for greenwashing activity.
The penalty follows an admission by Vanguard, during a hearing in the Federal Court on 8 March, that it engaged in conduct that was liable to mislead the public and had made representations that were false or misleading about the ESG exclusionary screens applied to the Vanguard Ethically Conscious Global Aggregate Bond Index Fund.
Investments held by the fund were based on the Bloomberg Barclays MSCI Global Aggregate SRI Exclusions Float Adjusted Index, which Vanguard claimed excluded companies with business activities in a range of industries, including fossil fuels, when some securities in the index and the fund were from issuers not researched or screened against applicable ESG criteria.
As such, on 28 March the court found Vanguard contravened the ASIC Act numerous times in regards to the false or misleading representations, which were included in 12 product disclosure statements, a media release, statements published on Vanguard’s website and an online interview on YouTube.
The case was initiated by the Australian Securities and Investments Commission and its deputy chair Sarah Court said greenwashing was a threat to the integrity of the financial system and would continue to be an area of enforcement activity.
“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,” Court said.
“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, who ruled on the case, said in March that Vanguard’s contraventions were serious and misrepresented the distinguishing feature of the fund.
“By its misleading conduct, Vanguard misrepresented the ‘ethical’ characteristics of the fund. Approximately 74 per cent of the securities in the fund by market value were not researched or screened against applicable ESG criteria,” O’Bryan said.
“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 imposition of the penalty follows ASIC’s recent successful outcome in its greenwashing case against Mercer Super, which was ordered to pay a penalty of $11.3 million in relation to misleading statements about the sustainable nature and characteristics of some of the investment options available to its members.
