Corporate watchdog secures its first win for greenwashing

ESG: In a landmark decision marking the first civil penalty judgment against a company for “greenwashing,” Vanguard Investments Australia, a division of the Vanguard Group based in the United States, has been found guilty of misleading investors. Vanguard Group is the largest provider of mutual funds and the second-largest provider of exchange-traded funds (ETFs) in the world after BlackRock.

During proceedings in the Federal Court, Vanguard Investments Australia admitted to engaging in conduct that had the potential to mislead the public and acknowledged making representations that were false or misleading. The allegations centered around claims concerning environmental, social, and governance (ESG) exclusionary screens applied to investments in Vanguard’s Ethically Conscious Global Aggregate Bond Index Fund.

With assets under management totalling $1 billion as of February 2021, Australian Securities and Investments Commission’s (ASIC) civil claim against Vanguard pertained to the promotion of the fund between August 2018 and February 17, 2021. According to ASIC’s assertions, Vanguard had marketed the fund as an “ethically conscious investment opportunity,” emphasising its exclusion of companies with significant business activities in various industries, including fossil fuels.

However, Vanguard’s representations were found to be inconsistent with reality. The Federal Court learned that a significant portion of securities in the Index and the fund were from issuers that had not been researched or screened against applicable ESG criteria, contrary to the company’s claims.

The misleading assertions were disseminated to the public through 12 product disclosure statements, a media release, and statements posted on Vanguard’s website. Moreover, they were reinforced through a Finance News Network interview on YouTube and a presentation at a Finance News Network fund manager event, both of which were published online.

ASIC’s Deputy Chair, Sarah Court, emphasised the significance of the court’s ruling, stating, “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.”

Ms Court underscored ASIC’s commitment to addressing misleading marketing and greenwashing claims, signalling a firm stance against deceptive practices.

“It sends a strong message to companies making sustainable investment claims that they need to reflect the true position,” she added.

In his judgment, Justice O’Bryan noted Vanguard’s admission to most of ASIC’s allegations while acknowledging that the parties remained in dispute over a narrow range of issues concerning liability. The matter is scheduled for further hearing on August 1, 2024, during which the court will deliberate on the appropriate penalty to impose on Vanguard for its conduct.

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