Vanguard has received three infringement notices from the Australian Securities and Investments Commission (ASIC) over alleged greenwashing.
ASIC was concerned the product disclosure statements for the Vanguard International Shares Select Exclusion Index funds may have been liable to mislead the public by overstating an exclusion, otherwise known as an investment screen, claimed to prevent investment in companies involved in significant tobacco sales.
The Vanguard funds were structured to exclude certain investments in tobacco, however, 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.
ASIC deputy chair, Sarah Court, said: “Greenwashing is not limited to environmental claims but extends to misleading ethical propositions. Entities which seek to promote ethical investing must ensure their statements are accurate and able to be substantiated”.
“Investors can feel strongly about not investing in tobacco production, manufacturing and sales, and where tobacco-exclusion investments are promoted, the entity making those claims must be able to substantiate the full exclusion of those investments.”
Vanguard paid $39,960 in compliance with the infringement notices on 1 December, 2022 and ASIC stated payment of an infringement notice was not an admission of guilt or liability.
A spokesperson for Vanguard said: “Earlier this year, Vanguard identified an inadvertent error in the Product Disclosure Statements for its Vanguard International Shares Select Exclusions Index Funds. Vanguard self-reported the error to ASIC, consistent with its statutory obligations, and issued a supplementary Product Disclosure Statement for each affected fund correcting the error.
“The error was the same for each of the three funds affected and arose from an unintended misdescription in the PDS of the exclusionary screens applied to the underlying investments in these funds. The relevant webpages and factsheets were accurate in describing the exclusionary screens.
“The PDS issue was promptly addressed by Vanguard shortly after it was identified. The error in the Product Disclosure Statements did not result in any adverse financial impact on investors, and at no time would any of the three funds have held different securities if it had tracked the misdescribed index.
“Vanguard has acknowledged the error and fully cooperated with ASIC in relation to this matter. Importantly, ASIC has at no stage suggested that the error arose otherwise than inadvertently.”
What about the large funds that claim they invest in things that are for the social good but are largest shareholders of the largest pokie machine manufacturers in the world?
Vanguard is not Robinson Crusoe on this one. I vividly remember “ethical” funds changing their nuclear filters when BHP bought WMC. And any global fund with a 5% tolerance for an otherwise-negatively-screened filter, will allow global behemoths to “greenwash” their exposures. Most of the RI/ESG material is merely pandering to an every-expanding market sector.
Responsible Investment is a minefield of unrealised, and in many cases, conflicting, expectations.
If ever there was a place for a financial planner’s oversight, it’s this one.