Morningstar has paid $29,820 to comply with a pair of infringement notices issued by ASIC after allegations it was exposed to “controversial weapons investments” in one of its funds.
In a media release on Friday morning, the regulator said the product disclosure statement for the Morningstar International Shares (Unhedged) Fund stated that it would exclude certain securities or sectors based on ESG considerations, including controversial weapons companies.
The regulator namechecked Honeywell International, General Dynamics, Leidos Holdings, Northrop Grumman and Raytheon Technologies.
Morningstar’s own ESG research arm Sustainalytics identifies those companies as being involved in controversial weapons, specifically the development or production of nuclear weapons or providing core components for them, according to ASIC.
The fund was exposed to Honeywell International from 2 November to 18 November 2022, but Morningstar divested its holding after becoming aware of the conflict. However, the fund was still exposed to General Dynamics, Leidos Holdings, Northrop Grumman and Raytheon Technologies securities from 31 May 2023 to 13 June 2023.
Morningstar reported the incidents to ASIC and paid the infringement notices on 30 November and it not required to make any admission of guilt or liability.
A statement from Morningstar said the error was identified by internal processes and there were no adverse financial impacts to fund investors.
“We take our commitment to investor transparency and regulatory compliance seriously, and our systems and processes were enhanced and updated after we discovered the errors,” the statement said.
The global financial services provider noted that Morningstar Investment Management Australia is a member of Morningstar’s Investment Management group, which is separate from Morningstar’s independent investment data and research group.
The fine levied against Morningstar comes after ASIC took action against Vanguard almost a year ago amid a crackdown on ESG mislabelling, a behaviour known as greenwashing.
Vanguard was fined $39,960 last December for mislabelling the ESG exclusions in its Vanguard International Shares Select Exclusions Index Fund. It excluded certain investments in tobacco but did not exclude companies involved in the sale of tobacco products.
ASIC subsequently took Vanguard to court in July over allegations of false and misleading statements regarding the Vanguard Ethically Conscious Global Aggregate Bond Index Fund (Hedged) which held bonds connected to fossil fuel-related activities.
Diversa Trustees – representing Cruelty Free Super – paid a $13,320 fine for alleged greenwashing by overstating the investment screens used by the fund.
