ASIC wins greenwashing case against Vanguard
The Federal Court determined Vanguard misled investors via claims it made about certain ESG screens it applied to its Ethically Conscious Global Aggregate Bond Index Fund.
On March 8, the indexing giant admitted to "engaging in conduct that was liable to mislead the public and that it had made representations that were false or misleading."
Justice O'Bryan found on March 28 Vanguard broke the law numerous times, breaching the ASIC Act when it made representations about the screens it was applying to the fund. This was to have occurred between August 2018 and February 2021. As at February 2021, the fund had about $1 billion in funds under management.
The claims were made via a variety of mediums, including in 12 product disclosure statements, a media release about the fund's launch, statements on its website, a Finance News Network interview featuring then-product research and development manager Rachel White on YouTube, and during a presentation by White at a Finance News Network event which was later published online.
The Ethically Conscious Global Aggregate Bond Index Fund tracked the Bloomberg Barclays MSCI Global Aggregate SRI Exclusions Float Adjusted Index. Vanguard claimed the index excluded only companies with significant business activities in a range of industries, including those in fossil fuels, but has since admitted that a "significant proportion" of the securities in the index and fund were from issuers that were not researched or screened against the relevant ESG criteria. According to documents, as at February 2021, some 46% of securities had not been screened, amounting to 74% of the fund's market value.
ASIC had alleged investments that should have been screened out included Abu Dhabi Crude Oil Pipeline LLC (ADCOP), Chevron Phillips Chemical Co. LLC, Colonial Pipeline Co, Empresa Nacional del Petróleo SA (ENAP) and John Sevier Combined Cycle Generation LLC.
"By Vanguard's own admission, it misled investors on a number of its claims," ASIC deputy chair Sarah Court said.
"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 and Vanguard will return to the courtroom on August 1 at which time the appropriate penalty will be determined.
The case was first brought by ASIC in July 2023. At the time, Vanguard said it had self-identified and self-reported the issue.
This marks the first win for ASIC in a greenwashing proceeding. Vanguard was also the first investment manager to be fined by the regulator for greenwashing, paying $40,000 to comply with three infringement notices related to product disclosure statements (PDS) for the Vanguard International Shares Select Exclusions Index Funds.
ASIC noted that the Vanguard International Shares Select Exclusions Index Funds excluded certain investments in tobacco, but "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."
This article first appeared on Financial Standard
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