Australia’s corporate watchdog has launched court action against investment management giant Vanguard for misleading investors about the green credentials of an ethical fund worth more than $1 billion.
The Australian Securities and Investment Commission has lodged civil penalty proceedings in the Federal Court against Vanguard Investments Australia over claims it had made about how it screened investments in its Vanguard Ethically Conscious Global Aggregate Bond Index Fund (Hedged) (Fund) for ESG (ethical, social, governance).
It is ASIC’s second major greenwashing case this year, after it took Mercer Super to court for allegedly making misleading statements about the sustainability of some of its investment products.
ASIC alleges Vanguard made false and misleading statements and engaged in conduct liable to mislead the public in representing that all securities in that fund were screened against certain ESG criteria. The fund was marketed to investors who were seeking, among other things, securities with an ethically conscious screen.
ASIC alleges these bonds exposed investor funds to investments that had ties to fossil fuels, including to oil and gas exploration.
Vanguard said in a statement it was “possible the portfolio held exposure to certain securities that may not have been reasonably expected by investors”.
The funds manager said it self-reported to ASIC, “and as soon as the disclosure weakness was identified, Vanguard acted swiftly to inform investors and enhance the disclosure”.
Companies ASIC alleges investor funds were exposed to include Abu Dhabi Crude Oil Pipeline LLC (ADCOP), 100 per cent owned by a state-owned oil company of Abu Dhabi; petrochemical manufacturer Chevron Phillips Chemical Co. LLC; and Colonial Pipeline Co which operates a pipeline system for refined oil products in the US.
ASIC deputy chair Sarah Court said investors were increasingly seeking investment options that excluded 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,” she said.
“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.”
This isn’t the first time ASIC has taken action against Vanguard for alleged greenwashing. For example, last December, the watchdog issued three infringement notices for a total of $39,960 against Vanguard for separate greenwashing conduct.
In this new case, investments held by the fund were based on an index called the Bloomberg Barclays MSCI Global Aggregate SRI Exclusions Float Adjusted Index (Index). Vanguard claimed the index excluded issuers with significant business activities in a range of industries, including those involving fossil fuels.
ASIC alleges Vanguard misled the public in product disclosure statements published between 7 August 2018 and 17 February 2021, a media release issued in August 2018, in statements on its website, statements made in an interview with a financial news website, Finance News Network, and statements made in a presentation at a fund manager event, both of which were recorded and published online.
ASIC is seeking declarations and pecuniary penalties from the court, as well as orders requiring Vanguard to publicise any contraventions found by the court.
The date for the first case management hearing is yet to be scheduled.
Vanguard said it had fully cooperated with ASIC’s queries and said there
was never any intention to mislead.
“[B]ut Vanguard recognises it has not lived up to the high standards it holds itself accountable to and apologises for the concern this matter may cause for our clients,” the company said in a statement.