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1 August 2023
Elizabeth Pfeuti
August 1, 2023
The Australian Securities & Investments Commission (ASIC) has filed a lawsuit against Vanguard’s Australian entity for not applying appropriate ESG filters on some of its supposedly ethical funds.
The Vanguard Ethically Conscious Global Aggregate Bond Index Fund (Hedged) Fund is at the centre of the allegations. Investments held by the fund were based on the Bloomberg Barclays MSCI Global Aggregate SRI Exclusions Float Adjusted index.
When marketing the fund to investors, Vanguard claimed the index excluded issuers with significant business activities in a range of industries, including those involved in fossil fuels. Such investors can reasonably be expected to demand, among other things, the manager to apply an ethical screen to securities.
However, ASIC alleges that ESG research was not conducted over a significant proportion of the issuers of bonds in the index, and therefore the fund.
ASIC deputy chair Sarah Court said: “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.”
Greenwashing has become a prevalent issue among financial institutions across the globe, with misused and untruthful information being presented to exaggerate the sustainability credentials of products. This includes the inaccurate use of terms such as “carbon neutral”, “clean” and “green” to dupe investors.
ASIC alleges investor funds were exposed to: Abu Dhabi Crude Oil Pipeline LLC (ADCOP), Chevron Phillips Chemical Co. LLC, Colonial Pipeline Co, Empresa Nacional del Petróleo SA (ENAP) and John Sevier Combined Cycle Generation LLC.
The proceedings in the Federal Court are yet to be scheduled.
In December 2022, ASIC issued three infringement notices totaling $39,960 against Vanguard for separate incidences of greenwashing.
In a bid to crack down on the practice in Australia, ASIC has issued over $140,000 in infringement notices across multiple fund managers.
In May, the regulator issued a report detailing the steps it was taking to address greenwashing, detailing 35 interventions in the space of nine months to March 2023.
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