ASIC has scored its first win in its anti-greenwashing campaign as the Federal Court ruled that Vanguard Australia made “misleading claims” in one of its investment products. The verdict comes as the federal government also puts a spotlight on greenwashing, tabling legislation climate risk reporting obligations for financial firms including super funds.
The passive investing giant operates an APRA-regulated super fund and several retail investment products in Australia. The fund in trouble with ASIC was its ‘Ethically Conscious Global Aggregate Bond’ index fund.
ASIC took legal action against Vanguard in 2023, alleging the latter made false and misleading statements in saying that all securities in the indexed fund were screened against certain ESG claims in its product disclosure statement, a media release, a media interview and an event presentation.
However, ASIC claimed it found at least 14 issuers, that collectively issued at least 27 bonds in the fund, violated these criteria as of February 2021. These bonds exposed investors to holdings which had ties to fossil fuels, the regulator said.
Vanguard declined to comment on details of ongoing legal matters. The case is listed for a further hearing on 1 August to consider the penalty.
This adds to a string of actions taken by the corporate watchdog against super funds in the last 12 months, including Mercer, Future Super and Active Super.
Vanguard also paid a nearly $40,000 fine after the fund manager reported it failed to exclude companies involved in the sale of tobacco products while having a tobacco-related negative screen in several products.
At the Investment Magazine Chair Forum last month, ASIC deputy chair Sarah Court said it is a good thing that funds are committing to net zero goals. But she warned that funds failing to meet their own pledges are flirting with misleading conducts.
“We recognise that [the net zero pledge] is a forecast and it’s imprecise,” Court said. “All sorts of things can get in the way, so we’re not obtuse to these issues, and we’re genuinely not unreasonable people.”
But she urged funds not to throw around descriptions like “carbon neutral”, “clean”, or “green” without reasonable ground just because it’s what the competitors are doing.
Many regulatory changes are happening on the ESG front as the Labor government ramps up its commitment to net zero before the election.
On Wednesday, it tabled a Treasury amendment bill to legislate financial services’ climate reporting duties, including super funds, along with strengthening regulatory arrangements for the nation’s financial market infrastructure to give the RBA and ASIC more regulatory powers.
The climate reporting will have a phase-in period of different entity sizes under the Corporation Act, but law practice MinterEllison highlighted that the timing had shifted. While thresholds for Group 1 entities who are the first to report remain unchanged from the consultation draft, the commencement date has been pushed back to the financial year that commences after 1 January 2025.
Separately on the same day, a Net Zero Economy Authority Bill was introduced to promote an orderly economic transformation as the world decarbonises. It will enable the transition of the current interim Net Zero Economy Agency to a standalone statutory authority.
Proxy advice firm the Australian Council of Superannuation Investors (ACSI) embraced both moves, suggesting that more coordination within the economy is a good thing.
“Mandated climate reporting will give investors access to consistent, comparable and decision-ready information, as well as allowing them to see how climate risk is being managed across the economy,” ACSI chief executive Louise Davidson said.
“The transition to a low carbon economy is the most significant transformation of our economy since the Industrial Revolution.
“It will take leadership from Government, in collaboration with investors, workers, business, communities and First Nations peoples to ensure that this transformation is effective and equitable.”
