The Australian Securities & Investments Commission (ASIC) Australia’s corporate, markets, and financial services regulator, announced that it has launched a court action against Vanguard Investments Australia, alleging that the investment manager made false and misleading claims about one of its ESG funds, which did not exclude investments in companies with fossil fuel activities as claimed.
Launched by Vanguard in 2018 as part of a new range of ESG funds, the Vanguard Ethically Conscious Global Aggregate Bond Index Fund was designed to offer investors with exposure to international fixed income investments, screened to exclude companies with activities related to areas including fossil fuels, alcohol and tobacco, among others. The fund followed the Bloomberg Barclays MSCI Global Aggregate SRI Exclusions Float Adjusted Index, which Vanguard claimed excluded issuers with significant activities in these areas.
According to the ASIC allegations, however, ESG research was not conducted over a significant proportion of the bond issuers in the fund, exposing investors to investments with ties to fossil fuels, including issuers such as Chevron Phillips Chemical and Abu Dhabi Crude Oil Pipeline, among others.
In a statement announcing the launch of the court action, ASIC said that it “alleges Vanguard misled the public in Product Disclosure Statements published between 7 August 2018 to 17 February 2021, a media release issued in August 2018, in statements on its website, statements made in an interview with Finance News Network and statements made in a presentation at a Finance News Network Fund Manager Event both of which were recorded and published online.”
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.”
In a statement on its website following the launch of the court action by ASIC, Vanguard said that it self-identified and self-reported to ASIC in early 2021, after discovering that the descriptions of the exclusionary screens made by the index provider and in Vanguard’s disclosure statements “did not provide a sufficiently detailed explanation that certain debt issuers lacking research coverage were still included in the benchmark,” making it possible for the fund to hold securities “that may not have been reasonably expected by investors.” Vanguard added that it informed investors and enhanced the disclosure of the fund.
The investment manager highlighted actions it has taken to strengthen its product disclosure process since then, including appointing a Head of ESG product, adding compliance and product resourcing in its product disclosure and oversight teams, enhancing its due diligence process and investing in improved technology.
“Vanguard is committed to serving our clients ESG investing needs and will continue to enhance our ESG product management, oversight and disclosure, in addition to actively working with the industry, policy makers and regulators in pursuit of continuous improvement in this space.”
The proceedings against Vanguard follows a statement last year by ASIC Chair Joseph Longo, warning providers of investment funds and financial products that the regulator was watching out for misleading sustainability claims, and that it was providing guidance for fund managers and issuers to keep clear of greenwashing. ASIC launched its first greenwashing suit earlier this year against Marsh McLennan company Mercer Superannuation, and the regulator has issued a series of infringement notices to several investment managers, including three against Vanguard.
“ASIC will continue its focus on alleged greenwashing conduct and we continue to stress to the financial services industry that if exclusions in investments are promised, these exclusions need to be applied and promises upheld.”