In a significant move against alleged greenwashing practices, the Australian Securities and Investments Commission (ASIC) has launched civil penalty proceedings in the Federal Court against Vanguard Investments Australia. The case stems from accusations of misleading conduct by the investment firm regarding certain environmental, social, and governance (ESG) exclusionary screens applied to its Vanguard Ethically Conscious Global Aggregate Bond Index Fund (Hedged), as per a press release by ASIC on July 25, 2023.
ASIC’s claims are centered around Vanguard’s purported false and misleading statements, which misled the public into believing that all securities within the Fund had undergone ESG screening. The Fund was marketed to appeal to ethically-conscious investors seeking securities screened against certain ESG criteria, including exclusions related to fossil fuel-related industries.
At the heart of the matter is the index upon which the Fund’s investments were based, known as the Bloomberg Barclays MSCI Global Aggregate SRI Exclusions Float Adjusted Index. Vanguard claimed that this index excluded issuers involved in industries like fossil fuels. However, ASIC contends that Vanguard failed to conduct comprehensive ESG research on a significant portion of the issuers of bonds in the Index and, consequently, in the Fund.
According to ASIC’s findings as of February 2021, the Index and the Fund included issuers that violated the applicable ESG criteria, totaling 42 issuers for the Index and at least 14 issuers for the Fund. These issuers collectively issued hundreds of bonds, exposing investors’ funds to industries linked to fossil fuel activities, including oil and gas exploration.
ASIC’s Deputy Chair, Sarah Court, emphasized the increasing demand from investors for options that exclude certain industries, and the importance of reliable investment screens to aid them in making ethical choices. She expressed concern that Vanguard’s screening and research fell short of what was promised to investors, terming it another example of “greenwashing.”
The alleged misleading conduct by Vanguard encompasses multiple platforms, including Product Disclosure Statements, a media release, statements on the company’s website, and statements made during an interview and a presentation at a Finance News Network event, both of which were recorded and published online.
In light of its commitment to curbing greenwashing practices, ASIC has already taken action against Vanguard in the past, issuing infringement notices totaling over $140,000 for separate greenwashing conduct. The current case seeks declarations, pecuniary penalties, and orders requiring Vanguard to publicize any contraventions found by the Court.
Vanguard’s first case management hearing is yet to be scheduled in the Federal Court. In the meantime, ASIC remains determined to address alleged greenwashing conduct in the financial services industry and emphasizes the importance of upholding promises made to investors regarding exclusions in investments.
The outcome of this case is likely to be closely watched by investors and the financial sector, as it could set important precedents for ensuring transparency and accountability in ESG-related investment practices.