ASIC fines Vanguard $40k for greenwashing tobacco investments

Rick Steves

“Investors can feel strongly about not investing in tobacco production, manufacturing and sales, and where tobacco-exclusion investments are promoted, the entity making those claims must be able to substantiate the full exclusion of those investments”.

The Australian Securities and Investments Commission has issued three infringement notices to investment manager Vanguard Investments Australia Ltd (Vanguard) in further action against alleged greenwashing.

According to the financial watchdog, the Product Disclosure Statements for the Vanguard International Shares Select Exclusions Index Funds (the Vanguard Funds) may have been liable to mislead the public by overstating an exclusion, otherwise known as an investment screen, claimed to prevent investment in companies involved in significant tobacco sales.

Vanguard excluded investments in cigarette manufacturers but not tobacco distributors

The Vanguard Funds were structured to exclude certain investments in tobacco, however, while this screen applied to exclude manufacturers of cigarettes and other tobacco products, it did not exclude companies involved in the sale of tobacco products.

Vanguard already paid ASIC $39,960 in compliance with the three infringement notices on 1 December 2022. Such payment, however, is not an admission of guilt or liability.

ASIC has made enforcement action against greenwashing a priority as ESG investing goes mainstream. Greenwashing is the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable, or ethical.

“Investors can feel strongly about not investing in tobacco production, manufacturing and sales, and where tobacco-exclusion investments are promoted, the entity making those claims must be able to substantiate the full exclusion of those investments”, ASIC Deputy Chair Sarah Court said. “Greenwashing is not limited to environmental claims but extends to misleading ethical propositions. Entities which seek to promote ethical investing must ensure their statements are accurate and able to be substantiated.”

First action against greenwashing in October

ASIC’s first action against greenwashing took place in October 2022 against Tlou Energy Limited, which paid $53,280 in infringement notices.

The regulator issued four infringement notices over concerns about alleged false or misleading sustainability-related statements made to the Australian Securities Exchange (ASX) in October 2021. The statements and images claimed that:

  • electricity produced by Tlou would be carbon neutral;
  • Tlou had environmental approval and the capability to generate certain quantities of electricity from solar power;
  • Tlou’s gas-to-power project would be ‘low emissions’; and
  • Tlou was equally concerned with producing ‘clean energy’ through the use of renewable sources as it was with developing its gas-to-power project.

ASIC was concerned that Tlou either did not have a reasonable basis to make the representations or that the representations were factually incorrect.

ASIC is currently investigating a number of listed entities, super funds, and managed funds in relation to their green credentials claims. Companies are on notice that ASIC is actively monitoring the market for potential greenwashing and will take enforcement action, including Court action, for serious breaches.

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