ASIC takes $27.5b super fund to court in groundbreaking greenwashing case

An Australian superannuation fund has been taken to task for allegedly having carbon-intensive fossil fuel, gambling and alcohol companies in its "Sustainable Plus" options for members, with the nation's corporate watchdog filing Federal Court proceedings against Mercer Superannuation for greenwashing.

The civil penalty proceedings initiated by the Australian Securities and Investments Commission (ASIC) mark the regulator's first ever court action over alleged greenwashing conduct, claiming Mercer made misleading statements about the sustainable nature and characteristics of some of its superannuation investment options.

ASIC alleges members who took up the Sustainable Plus options offered by the Mercer Super Trust, of which Mercer is the trustee, had investments in companies involved in industries the website statements said were excluded. For example:

• 15 companies involved in the extraction or sale of carbon intensive fossil fuels (including AGL Energy Ltd, BHP Group Ltd, Glencore PLC and Whitehaven Coal Ltd);
• 15 companies involved in the production of alcohol (including Budweiser Brewing Company APAC Ltd, Carlsberg AS, Heineken Holding NV and Treasury Wine Estates Ltd); and
• 19 companies involved in gambling (including Aristocrat Leisure Limited, Caesar’s Entertainment Inc, Crown Resorts Limited and Tabcorp Holdings Limited).

Mercer's statements marketed the Sustainable Plus options as suitable for members who ‘are deeply committed to sustainability’ because they excluded investments in companies involved in carbon intensive fossil fuels like thermal coal. Exclusions were also stated to apply to companies involved in alcohol production and gambling.

"This is the first time ASIC has taken an Australian entity to court regarding alleged greenwashing conduct, and it reflects our continuing efforts to ensure sustainability-related claims made by financial institutions are accurate," says ASIC Deputy Chair Sarah Court.

"There is increased demand for sustainability-related financial products, and with that comes the growing risk of misleading marketing and greenwashing. 

"If financial products make sustainable investment claims to investors and potential investors, they need to reflect the true position. If investments in certain industries like fossil fuels are said to be excluded, this promise must be upheld."

In November the corporate watchdog highlighted greenwashing as one of its enforcement priorities for 2023, noting at the time a 157 per cent increase in advisers who claim to provide Environment, Social and Governance (ESG) advice since 2016, against a backdrop of $128 billion in net flows into exchange-traded funds (ETFs) with an ESG focus.

ASIC committed to closely monitoring for misleading conduct and claims of greenwashing that cannot be sustained, stating it would take enforcement action where necessary. 

ASIC has issued over $140,000 in infringement notices in response to concerns about alleged greenwashing, which include Tlou Energy Limited, Vanguard Investments Australia, Diversa Trustees Limited and Black Mountain Energy.

The proceeding against Mercer is also the first time ASIC has commenced court action after legislative amendments, arising from the Financial Services Royal Commission, enhanced ASIC’s powers to take action regarding a broader range of superannuation trustee conduct.

ASIC is seeking declarations and pecuniary penalties from the court, and injunctions preventing Mercer from continuing to make any of the alleged misleading statements on its website, and orders requiring Mercer to publicise any contraventions found by the court.

According to SuperGuide, Mercer Superannuation is ranked Australia's 22nd largest fund with approximately $27.523 billion in assets under management. On Mercer's website, it states it has 180,000 members and 1,300 investment managers. 

Business News Australia has approached Mercer for comment.

Brett Morgan, a superannuation funds campaigner at non-profit organisation Market Forces, said ASIC's court action was a big step and should send shockwaves through the superannuation industry and corporate Australia more broadly.

"It’s great to see ASIC taking enforcement action. Greenwashing needs to be stamped out because it’s undermining real climate action and potentially misleading millions of super fund members," Morgan said.

"Market Forces' 2022 analysis found eight of 11 major super fund investment options labelled ‘sustainable’ or ‘socially responsible’ were potentially misleading consumers by investing in companies expanding the fossil fuel sector.

"It’s tantamount to greenwashing that super funds with net zero commitments are investing members’ retirement savings in companies with massive fossil fuel expansion plans like Santos and Woodside."

Morgan said superannuation funds had a responsibility to their members to match climate claims with real action.

"Climate science tells us investing in fossil fuel expansion is incompatible with achieving net zero carbon emissions by 2050," he said.

Unchained Solutions CEO Dr Stephen Morse, who gave a compelling presentation on environmental, social and governance (ESG) matters at the recent E2E Summit - including how the significant corporate push for improved ESG reporting will flow through to suppliers such as SMES - offered his thoughts on ASIC's latest move.

"The actions taken by ASIC provide a strong incentive to companies with commitments to environmental and social sustainability to ensure their business activities, whether in the form of strategy, products and services, are credible and verifiable," Morse said.

"While the reputational risks are obvious, actions taken to need be centred on effecting real change for planet and people," he said.