Green Washing – Vanguard Case A Warning For Others To Be On Guard

The Australian Securities and Investments Commission (ASIC) has commenced civil penalty proceedings in the Federal Court of Australia against Vanguard Investments Australia, alleging misleading conduct in relation to claims about certain environmental, social and governance (ESG) exclusionary screens applied to investments in a Vanguard fund (the Fund).

The proceedings follow ASIC also launching a greenwashing case against superannuation fund Mercer; which you can read about in our article Warning To Corporations: ASIC Shows No Mercer For Alleged Greenwashing

ASIC alleges that:

• the Fund advertised itself as an ethically conscious fund for investors seeking securities with an ethically conscious screen;
• Vanguard advertised that the Fund excluded issuers with significant business activities in a range of industries, including those involving fossil fuels;
• the Fund included issuers that violated the ESG criteria; and
• that the bonds exposed investor funds to investments which had ties to fossil fuels, including those with activities linked to oil and gas exploration.

ASIC Deputy Chair Sarah Court said:

We know that investors are increasingly seeking investment options that exclude certain industries, and investors need to be able to rely on investment screens to help them make these choices.

ASIC will continue its focus on alleged greenwashing conduct and we continue to stress to the financial services industry that if exclusions in investments are promised, these exclusions need to be applied and promises upheld.

How to avoid greenwashing when offering or promoting sustainability-related products

ASIC considers that greenwashing is:

The practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical.

Greenwashing distorts information that an investor may require or rely on in making informed decisions.

The Corporations Act 2001 (Corporations Act) and the Australian Securities and Investments Commission Act 2001 (ASIC Act) contain general prohibitions against a person making statements or disseminating information that is false or misleading, or engaging in dishonest, misleading or deceptive conduct in relation to a financial product or financial service

These provisions must be complied with when offering or promoting sustainability-related products.

ASIC, in the information sheet how to avoid greenwashing when offering or promoting sustainability-related products, encourages businesses to ask the following questions, in an effort to avoid engaging in  misleading or deceptive greenwashing practices:

• Is our product true to label?
• Have we used vague terminology?
• Are our headline claims potentially misleading?
• Have we explained how sustainability-related factors are incorporated into investment decisions and stewardship activities?
• Have we explained your investment screening criteria? Are any of the screening criteria subject to any exceptions or qualifications?
• Do we have any influence over the benchmark index for your sustainability-related product? If we do, is the level of influence accurately described?
• Have we explained how we use metrics related to sustainability?
• Is it easy for investors to locate and access relevant information?

Lavan Comment

Between 1 July 2022 and 31 March 2023, ASIC made 23 corrective disclosure outcomes; issued 11 infringement notices issued and commenced civil penalty proceedings for greenwashing conduct.

Further, ASIC has identified preventing harm arising from misleading marketing and greenwashing as a key focus for  2023.

The most recent claim against Vanguard highlights the importance of strict regulatory compliance and caution when it comes to Greenwashing.

For advice on matters relating to corporate crime and regulatory investigations, please contact Cinzia Donald, Partner, Corporate Crime and Investigations Team.