Need to know
- Corporate regulator ASIC is currently prioritising enforcement of laws around greenwashing in the financial sector
- In the 15 months to 30 June, the regulator intervened in 47 greenwashing cases
- ASIC's most recent Federal Court win against Vanguard Investments has resulted in a record $12.9 million dollar penalty
Since making greenwashing in the financial services sector an enforcement priority, the Australian Securities and Investments Commission (ASIC) has been busy.
Over a 15-month period up to 30 June this year, the corporate regulator intervened in 47 cases where companies were claiming environmental, social and governance (ESG) credentials to bring in business, while secretly investing in prohibited areas such as fossil fuels.
It seems the ESG exclusionary screens that finance companies use to block non-compliant investments are riddled with holes.
Depending on the extent of the conduct, ASIC has either compelled the companies to correct their marketing misinformation, issued infringement notices that came with fines or, in rare cases, taken the companies to court.
Second big court win for the regulator
In August this year, ASIC won the first greenwashing case it took to Federal Court against Mercer Superannuation. The court fined the company $11.3 million for including alcohol, gambling and fossil fuels in its 'Sustainable Plus' investment options, which it marketed to members who were "deeply committed to sustainability".
The investments weren't supposed to include any of these things, but it would have been difficult for investors to know they were there.
ASIC considers greenwashing 'a serious threat to the integrity of the Australian financial system'
The most recent Federal Court win, against Vanguard Investments, has resulted in a record $12.9 million penalty, a reflection of ASIC's assessment of greenwashing as "a serious threat to the integrity of the Australian financial system".
In the case of the Vanguard Ethically Conscious Global Aggregate Bond Index Fund, around 74% of the securities by market value were not researched or screened at all, meaning Vanguard was calling them ethically conscious without bothering to check.
'Essential that companies don't misrepresent'
The Justice offered a view of why the company gave the fund the ESG tick of approval anyway, saying, "The misrepresentations enhanced Vanguard's ability to attract investors to the fund and enhanced Vanguard's reputation as a provider of investment funds with ESG characteristics."
"Vanguard admitted it misled investors that these funds would be screened to exclude bond issuers with significant business activities in certain industries, including fossil fuels, when this was not always the case," says ASIC deputy chair Sarah Court.
The misrepresentations by Vanguard came in the form of product disclosure statements, a media release, statements on its website, a media interview, and a corporate fund manager event.
It is essential that companies do not misrepresent that their products or investment strategies are environmentally friendly, sustainable, or ethical
ASIC deputy chair Sarah Court
"It is essential that companies do not misrepresent that their products or investment strategies are environmentally friendly, sustainable, or ethical" says Court.
In August, CHOICE covered an event in which Nobel-winning economist Joseph Stiglitz argued that Australia needs stronger laws around greenwashing. Consumers have the power to shop or invest ethically and help mitigate the climate crisis, Stiglitz said, but it will only work if the claims companies make can be trusted.
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