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The Australian corporate watchdog has caught out one of the world’s biggest investment groups for misleading investors in its first civil penalty judgement against any company for “greenwashing”.
Vanguard Investments Australia, a division of the US-based Vanguard Group, admitted in the Federal Court that it had engaged in conduct that was liable to mislead the public and that it had made representations that were false or misleading.
The charges relate to claims about environmental, social and governance (ESG) exclusionary screens applied to investments in Vanguard’s Ethically Conscious Global Aggregate Bond Index Fund.
The fund had $1 billon in asset under management in February 2021, with the civil claim brough by ASIC related to promotion of the fund between August 2018 and 17 February 2021.
The Federal Court heard that the fund offered an “ethically conscious investment opportunity”.
Vanguard had claimed the index excluded only companies with significant business activities in a range of industries, including those involving fossil fuels.
However, the company has admitted that a significant proportion of securities in the Index and the fund were from issuers that were not researched or screened against applicable ESG criteria.
The Federal Court heard that the misleading claims by Vanguard were made to the public via 12 product disclosure statements and a media release, in addition to statements published on Vanguard’s website.
The claims were further amplified through a Finance News Network interview on YouTube and a presentation at a Finance News Network fund manager event which was published online.
“By Vanguard’s own admission, it misled investors on a number of its claims,” says ASIC deputy chair Sarah Court in a statement following today’s court ruling.
“In this case, Vanguard promised its investors and potential investors that the product would be screened to exclude bond issuers with significant business activities in certain industries, including fossil fuels, when this was not always the case.
“As ASIC’s first greenwashing court outcome, the case shows our commitment to taking on misleading marketing and greenwashing claims made by companies in the financial services industry.
“It sends a strong message to companies making sustainable investment claims that they need to reflect the true position.”
In his Federal Court judgement, Justice O’Bryan notes that while Vanguard admits most of ASIC’s allegations, the parties “remain in dispute in respect of a narrow range of issues concerning liability”.
The matter is listed for further hearing on 1 August 2024 when the court will consider the penalty to impose on Vanguard for its conduct.
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