The second ruling arrives in Australia in the space of two months regarding greenwashing practices by financial institutions. This time the target is the Australian branch of Vanguard responsible for repeatedly providing misleading communications about its own bond fund
The crackdown by the Australian authorities regarding greenwashing practices implemented by financial institutions is enriched with a new chapter. After the fine of 11.3 million Australian dollars imposed on beginning of August a Mercer Superannuation (Australia) Limited for misleading statements about the nature and sustainable characteristics of some of its two investment products, now it is Vanguard Investments Australia to end up in the eye of the storm.
From the findings ofAustralian Securities & Investments Commission (Asic), in fact, it emerged that 74% of the assets of the “Vanguard Ethically Conscious Global Aggregate Bond Index Fund”, marketed as a product with ESG characteristics, were not subjected to any type of screening with respect to environmental, social and governance criteria. However, the fund’s commercial documents indicated that the investment policy was based on the securities contained in the Bloomberg Barclays Msci Global Aggregate Sri Exclusions Float Adjusted Index and that the investment policy excluded a series of sectors, including fossil fuels. The case was then taken by Asic to a federal court which fined Vanguard’s Australian branch A$12.9 million.
During the proceedings it emerged that Vanguard repeatedly made misleading public claims about the bond fund under investigation in 12 product disclosure documents, in a press release, in documents available on its website, an interview on the Finance News Network YouTube channel and a presentation at the Finance News Network Fund Manager event also published online.
In imposing the fine the Judge Michael O’Bryan stated that «Vanguard’s false statements concerned the main distinctive feature of the fund, i.e. its “ethical” characteristics, developed and promoted by the manager on the basis of the strong market demand for investment products with ESG characteristics. By doing so, Vanguard benefited from its deceptive conduct, attracting investors and enhancing its reputation as a provider of ESG fundsunlike what would have happened if Vanguard had precisely communicated the limitations of ESG screening and the fund’s exposure to issuers operating in sectors subject to exclusions.”
ASIC’S COMMITMENT AGAINST GREENWASHING
In recent years, ASIC’s work to combat greenwashing practices has significantly intensified. As indicated in the table, which does not yet report the data relating to the Vanguard ruling, there were three civil cases brought against financial institutions, 19 infringement reports and 60 corrective communications.
Sarah Courtvice-president of Asic, commented on the conviction as follows: «The Vanguard case demonstrates our commitment to tackling misleading marketing communications and greenwashing carried out by companies operating in the financial services sector. The sanction sends a strong message to those companies that make declarations of sustainable investment, declarations that must be truthful when tested by facts».
The victories in the Mercer and Vanguard cases therefore crown the efforts made by the Australian regulator to limit misleading communications to investors and promote transparency on the part of financial institutions.
VANGUARD ADMITS GUILT AND “DEFENDS ITSELF”
Last March at a preliminary hearing Vanguard Australia had admitted to having engaged in conduct likely to mislead investors and making false or misleading statements.
Now in response to the sanction, the manager limited himself to underlining how he has collaborated with Asic since 2021, the year in which the irregularities emerged, adding that no cases of financial losses on the part of its investors have been found.
Matthew Russo
AsicET.litigationgreenwashingMercer Superannuation (Australia) LimitedSanzioniSarah CourtVanguard Investments Australia
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