ASIC takes Vanguard to court for greenwashing
“Vanguard promised its investors and potential investors that the product would be screened to exclude bond issuers with significant business activities in certain industries, including fossil fuels.”
The Australian Securities and Investments Commission has lodged civil penalty proceedings in the Federal Court against Vanguard Investments Australia, after first taking action against the company in December 2022 for alleged greenwashing.
ASIC alleges misleading conduct in relation to claims about certain environmental, social, and governance (ESG) exclusionary screens applied to investments in a Vanguard fund.
Vanguard Ethically Conscious Global Aggregate Bond Index Fund exposed to fossil fuels?
According to the complaint, Vanguard made false and misleading statements and engaged in conduct liable to mislead the public in representing that all securities in the Vanguard Ethically Conscious Global Aggregate Bond Index Fund were screened against certain ESG criteria.
The fund was marketed to investors seeking, amongst other things, securities with an ethically conscious screen: investments held by the fund were based on an index called the Bloomberg Barclays MSCI Global Aggregate SRI Exclusions Float Adjusted Index. Vanguard claimed the Index excluded issuers with significant business activities in a range of industries, including those involving fossil fuels.
ASIC, however, says that ESG research was not conducted over a significant proportion of issuers of bonds in the index and therefore the fund, which allegedly included issuers that violated the applicable ESG criteria, as of February 2021.
The Australian regulator found that the index included at least 180 bonds (from 42 issuers) and the fund included at least 27 bonds (from 14 issuers) that exposed investor funds to investments with ties to fossil fuels, including those with activities linked to oil and gas exploration.
ASIC says Vanguard broke its promise
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. In this case, Vanguard promised its investors and potential investors that the product would be screened to exclude bond issuers with significant business activities in certain industries, including fossil fuels.
“We consider that the screening and research undertaken on behalf of Vanguard was far more limited than that being promised to investors, and we consider this constitutes another example of greenwashing. 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.”
ASIC has issued over $140,000 in infringement notices in response to concerns about alleged greenwashing, including three infringement notices totaling $39,960 against Vanguard for separate greenwashing conduct.