Australian Securities Investment and Commission (Asic) has lodged civil penalty proceedings in the Federal Court against Vanguard Investments Australia.
The Aussie regulator is alleging that Vanguard had “misleading conduct in relation to claims about certain environmental, social and governance (ESG) exclusionary screens applied to investments in a Vanguard fund”.
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) were screened against certain ESG criteria.
The fund was reportedly marketed to investors seeking, among 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 (Index). Vanguard “claimed the Index excluded issuers with significant business activities in a range of industries, including those involving fossil fuels”, Asic said.
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.
Sarah Court, Asic deputy chair, 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 is seeking declarations and pecuniary penalties from the court. It also seeks orders requiring Vanguard to publicise any contraventions found by the court.