Further to our series of articles on ESG, on 24 July 2023 ASIC commenced proceedings seeking declarations, pecuniary penalties and adverse publicity orders against Vanguard Investments Australia Ltd (Vanguard) alleging misleading conduct in relation to claims about the applicability of environmental, social and governance (ESG) criteria applied to investments in an investment fund offered by Vanguard.
These types of claims are commonly known as ‘Greenwashing’ claims which were considered in our article earlier this year which can be found here.
In or around August 2018, the Vanguard Ethically Conscious Global Aggregate Bond Index Fund (Hedged) (Fund) commenced operation. The Fund enabled investors to invest directly in the securities that comprise the Fund.
The composition of the Fund is based on an index called the Bloomberg Barclays MSCI Global Aggregate SRI Exclusions Float Adjusted Index (Index), which is administered and made available to Vanguard by Bloomberg Index Services Limited (Bloomberg).
The Index purported to exclude securities based on research and screening against ESG criteria. The ESG research of the securities in the fund was performed by an external organisation and then provided to Bloomberg for use in the Index.
Between approximately August 2018 and February 2021, it is claimed that Vanguard published 12 product disclosure statements (PDSs) for the Fund which were made available to the public.
Each of these PDSs is said to have contained statements materially similar to the following:
Environmental, social, and ethical considerations
Vanguard does not take into account labour standards, environment, social or ethical consideration when selecting, retaining or realising investments in the Fund to track the performance of the benchmark index. Vanguard has engaged Bloomberg Barclays to provide an index of securities for the Fund that excludes companies with significant business activities involving fossil fuels, alcohol, tobacco, gambling, military weapons and civilian firearms, nuclear power and adult entertainment.
This is a timely reminder to financial services providers that ASIC is actively pursuing claims for Greenwashing and to take care with the representations that they make with respect to their various financial offerings.
Products that claim to have been subjected to and screened according to various ESG criteria need to be assessed to ensure their compliance with the ESG criteria lest they run the risk of misleading investors and an investigation and prosecution by ASIC.
Financial services provides must be vigilant in ensuring that all ethically conscious offerings have been properly screened and researched and that statements made with respect to these offerings properly reflect the reality of their composition and that there is evidence to prove they are true.
If you would like further information, please do not hesitate to contact Susan Goodman.
If you found this insight article useful and you would like to subscribe to Gadens’ updates, click here.
Susan Goodman, Partner
Ahmed El-jaam, Lawyer