ASIC has lodged civil penalty proceedings in the Federal Court against Vanguard Investments Australia for alleged greenwashing.
ASIC alleges Vanguard made false and misleading statements and engaged in conduct liable to mislead the public in representing that all securities in the Vanguard Ethically Conscious Global Aggregate Bond Index Fund (Hedged) (Fund) were screened against certain ESG criteria.
The Fund was marketed to investors seeking, amongst other things, securities with an ethically conscious screen.
Investments held by the Fund were based on an index called the Bloomberg Barclays MSCI Global Aggregate SRI Exclusions Float Adjusted Index which Vanguard claimed excluded issuers with significant business activities in a range of industries, including those involving fossil fuels.
However, ASIC alleges that ESG research was not conducted over a significant proportion of issuers of bonds in the index and therefore the Fund.
As at February 2021, ASIC alleges the index and the Fund included issuers that violated the applicable ESG criteria, including:
• For the index, 42 issuers which collectively issued at least 180 bonds; and
• For the Fund, at least 14 issuers that collectively issued at least 27 bonds.
ASIC alleges that these bonds exposed investor funds to investments which had ties to fossil fuels, including those with activities linked to oil and gas exploration.
ASIC deputy chair, Sarah Court, said: “We know that investors are increasingly seeking investment options that exclude certain industries, and investors need to be able to rely on investment screens to help them make these choices.
“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.
“We consider that the screening and research undertaken on behalf of Vanguard was far more limited than that being promised to investors, and we consider this constitutes another example of greenwashing.”
ASIC alleges Vanguard misled the public in Product Disclosure Statements (PDS) published between 7 August 2018 to 17 February 2021, a media release issued in August 2018, in statements on its website, statements made in an interview with Finance News Network and statements made in a presentation at a Finance News Network Fund Manager Event, both of which were recorded and published online.
“ASIC will continue its focus on alleged greenwashing conduct and we continue to stress to the financial services industry that if exclusions in investments are promised, these exclusions need to be applied and promises upheld,” concluded Court.
Last December, Vanguard received three infringement notices totalling $39,960 for alleged greenwashing in a separate matter.
ASIC is seeking declarations and pecuniary penalties from the Court. ASIC also seeks orders requiring Vanguard to publicise any contraventions found by the Court. The date for the first case management hearing is yet to be scheduled by the Court.
A statement from Vanguard said: “The issue was self-identified and self-reported to ASIC, and as soon as the disclosure weakness was identified, Vanguard acted swiftly to inform investors and enhance the disclosure. We have fully cooperated with ASIC’s queries on the matter since it was first self-reported
“There was never any intention to mislead, but Vanguard recognises it has not lived up to the high standards it holds itself accountable to and apologises for the concern this matter may cause for our clients.
“Vanguard is committed to serving our clients ESG investing needs and will continue to enhance our ESG product management, oversight and disclosure, in addition to actively working with the industry, policymakers and regulators in pursuit of continuous improvement in this space.”
It said it has taken remedial action in the subsequent two years including temporarily placing a trading halt on the ETF share class to allow for a disclosure update, updating its PDS and supplementary PDS, strengthening its disclosure process and enhancing the disclosure due diligence process.
Blackrock’s biggest competitor. Funny about that. Is it BlackSIC or Arock?
This is why is probably won’t deal with personal advice clients who specify ‘ESG’ requirements. There is nothing stopping a client from complaining if their cash, for example, was held in a bank account and the bank provided loans to fossil fuel or mining companies etc. The way ASIC nit-picks behaviours and has power to impose financial penalties for inadvertent errors/oversights is ridiculous. BTW, I love the way ASIC will be charging me over $3K in levy as a financial advisor this year, despite the fact that I have no clients yet. Whatever happened to the Royal Commission sanctions against those charging fees for no service? ASIC is the absolute worst example of charging fees for no service, when it comes to their ‘cost recovery’ charges on individual financial advisors in order to recoup the cost of their ‘oversight’ of the advice industry (when most of the behaviour requiring increased ‘oversight’ was done by the big four banks, who have all pulled out of the advice business, so are no longer paying ASIC for ‘oversight’ of financial advisors.