The Federal Court has ruled a major fund management corporation misled investors about its $1 billion ethical fund, which the company claimed was screened to ensure investments went into environmentally and socially beneficial projects.
Fund manager accused of misleading investors over ethical fund
It was the first major victory for the Australian Securities & Investments Commission against so-called greenwashing by companies which exaggerate their environmental credentials or falsely claim they are investing in environmentally beneficial programs.
Greenwashing involves misleading the public by presenting an organisation's policies, products and actions as more environmentally friendly than they really are. Misleading the public is an offence that can lead to very large fines. (Please see How to avoid greenwashing when offering or promoting sustainability-related products, ASIC, June 2022.)
ASIC took legal action against fund manager Vanguard Investments Australia Ltd, which has $11 trillion in assets under management around the world, over the corporation's claim its "ethically conscious" fund was investing in sustainable projects.
ASIC alleged Vanguard misled investors and the public when the fund was found to be investing in firms linked to oil and gas exploration. (Please see ASIC wins first greenwashing civil penalty action against Vanguard, ASIC, 28 March 2024.)
Fine for misleading public over ethical fund could be significant
Justice Michael O'Bryan ruled Vanguard had engaged in conduct that was liable to mislead the public, which contravened sections 12DB(1) and 12DF(1) of the ASIC Act. (Please see Australian Securities and Investments Commission v Vanguard Investments Australia Ltd [2024] FCA 308.)
The case returns to court in August 2024 for a penalties and costs hearing.
Vanguard's fine could be big. Superannuation giant Mercer paid an $11 million fine after claiming its sustainable fund did not invest in fossil fuels, when it did invest in gas and coal mining companies. Mercer also claimed its ethical fund did not invest in alcohol or gambling companies, when it held shares in a casino and beer maker Heineken.
ASIC cracking down on greenwashing and vague claims
ASIC deputy chair Sarah Court said the regulator was not only cracking down on greenwashing, but also terms used by firms that had no merit, such as carbon-neutral, clean and green, and vague terms portraying sustainability.
The Vanguard court result demonstrates that the corporate watchdog is looking for more greenwashing cases to take to court.
Last year the Australian Competition & Consumer Commission found 57 per cent of businesses in various sectors made vague and unqualified environmental claims.
Companies need to ensure their claims can be substantiated
Any business that wants to present itself as environmentally conscious and doing its bit in the fight against climate change should ensure the claims it makes can be legally substantiated.
It clearly isn't enough just to say your company is doing the green thing, or that it has an ethical fund – you have to be able to prove it. Beware of stretching the truth in claiming your product helps the environment.
ASIC says misleading claims can include vague terminology, lack of evidence, untrue labelling, misleading comparisons, exaggeration, or misuse of certifications.
The language ASIC uses to describe what may be misleading can itself be rather unclear. It would be wise to get legal advice before embarking on a sales campaign or promotion extolling your company's green virtues to make sure it isn't greenwashing.
Mark Shumsky
Government investigations and
prosecutions
Stacks Collins Thompson
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