Vanguard has been penalised $12.9 million for making false and misleading statements about its ethically conscious fund.
A verdict had previously been given back in March 2024 which stated Vanguard broke the law by making misleading claims about certain environmental, social and governance (ESG) exclusionary screens applied to investments in an index fund run by the firm.
In a Federal Court ruling on 25 September, the asset manager was ordered to pay $12.9 million in an aggregate pecuniary penalty.
It also has to publish an adverse publicity notice at its own expense within 30 days of the order on four webpages for 12 months. This should appear immediately upon accessing the page as a picture title, with the heading “Notification of Misconduct by Vanguard”.
This states that false or misleading statements about the Vanguard Ethically Conscious Global Aggregate Bond Index Fund (Hedged) (Ethically Conscious Fund) were made in:
- 12 Product Disclosure Statements (PDSs), which related to the AUD Hedged, NZD Hedged and ETF classes of the Ethically Conscious Fund.
- A media release.
- Material on Vanguard’s website.
- An interview that was published on YouTube.
- A presentation that was given at a fund manager event and then published online.
The penalty reflected $9 million for the first point, $1.2 million for the website material, $1.2 million for the media release, $750,000 for the YouTube interview and $750,000 for the presentation. A 25 per cent discount was applied to reflect the high level of co-operation by Vanguard in the investigation and court proceedings.
Vanguard’s size, Justice O’Bryan said, meant it was difficult to calculate a meaningful sum but that the ultimate penalty reflected the annual income earned from the fund of $1.3 million in FY22 which was only 0.45 per cent of its total annual income.
“I consider that an aggregate penalty of this size is proportionate and strikes an appropriate balance between deterrence and oppressive severity. In aggregate, it is an amount that is many multiples of the total revenue earned by Vanguard from managing the fund during the relevant period, and many multiples of the annual revenue earned by Vanguard from managing the fund after the end of the relevant period.”
ASIC first publicly announced it had commenced civil penalty proceedings against Vanguard back in July 2023, and the case was ASIC’s first court victory regarding greenwashing.
Vanguard must also pay costs of and incidental to the hearing on 8 March, and the plaintiff’s costs of the proceeding.
A statement from Vanguard said: “Vanguard takes its regulatory obligations and responsibilities to its clients seriously. Vanguard has cooperated with ASIC throughout this matter since informing the regulator of the issue and its approach to rectification in 2021. There were no findings of financial loss to investors.
“Vanguard apologises to its clients for these errors, which were unintentional. Vanguard acknowledges the importance of accurate product and marketing information in helping consumers to make informed investment decisions.
“Following a self-initiated independent review of relevant internal processes, Vanguard has strengthened its procedures, governance, technology and training to reflect the high standards investors expect of Vanguard products and services.
“Payment of this penalty will not be borne by Vanguard Australia investors.”
Earlier this year, ASIC secured an $11.3 million penalty against Mercer Superannuation (Australia) after it admitted to making misleading statements about the sustainable nature and characteristics of some of its superannuation investment options.
The court observed Mercer made misleading statements on its website and in a video published online during four different periods, from 12 November 2021 to 1 March 2023, about seven Sustainable Plus investment options.
