ESG: Australian regulator wins first greenwashing court case against Vanguard

Rick Steves

Vanguard admitted that a notable portion of the securities within both the Index and the Fund did not undergo the promised ESG scrutiny.

A Federal Court in Australia has found Vanguard Investments Australia in breach of law due to misleading environmental, social, and governance (ESG) claims regarding its Vanguard Ethically Conscious Global Aggregate Bond Index Fund.

Justice O’Bryan stated Vanguard violated the ASIC Act by disseminating false or misleading information about the ESG exclusionary screens of its bond index fund through various channels including product disclosures, media releases, website statements, a YouTube interview, and an online presentation.

Vanguard had previously acknowledged its conduct misled the public through false representations. The court has scheduled a hearing on 1 August 2024 to decide the penalty for Vanguard’s actions.

Vanguard manages over $1 billion in ESG fund

The misleading claims centered around the application of ESG exclusionary screens to the fund, which were purported to omit companies with significant operations in certain industries, such as fossil fuels. Vanguard admitted that a notable portion of the securities within both the Index and the Fund did not undergo the promised ESG scrutiny.

This case serves as a critical reminder of the importance of truthful representation in sustainability-related offerings, with Vanguard managing over $1 billion in the fund as of 26 February 2021. ASIC continues to guide firms with resources like Information Sheet 271 and Report 763 to prevent greenwashing and promote genuine sustainable investment practices.

ASIC Deputy Chair Sarah Court said: “By Vanguard’s own admission, it misled investors on a number of its claims. 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, when this was not always the case. As ASIC’s first greenwashing court outcome, the case shows our commitment to taking on misleading marketing and greenwashing claims made by companies in the financial services industry. It sends a strong message to companies making sustainable investment claims that they need to reflect the true position.”

ASIC filed the lawsuit against Vanguard last year after first fining the firm AU$40,000. 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.

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.

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