Australian Court Determines Vanguard Made Misleading ESG Claims

The Australian Securities and Investments Commission (ASIC) has won big in an environmental, social, and governance (ESG) case against Vanguard Investments Australia.

A Federal Court in Australia has now determined that the company violated ASIC guidelines after making false representations about its ESG exclusionary screens used for its Vanguard Ethically Conscious Global.

The recent ruling is a notable milestone for the Australian securities regulator. The ASIC has been working to deal with greenwashing in the financial service industry.

Greenwashing is a practice where a company makes misleading statements in an attempt to appear more environmentally friendly than it is. Given the increased focus on environmental sustainability by investors, some companies have been engaging in false marketing and unsubstantiated claims about their eco-friendliness.

A company engaging in greenwashing might use deceptive marketing gimmicks to mislead customers who prefer buying goods and services from eco-friendly companies. To attract these customers or investors, a company might make false or exaggerated claims about product sustainability.

The Australian regulator has been cracking down against this practice to protect consumers and investors from such false and misleading statements.

ASIC Wins a Greenwashing Case Against Vanguard

Last month, Vanguard admitted to the charges brought forward by the ASIC. The regulator said that the company misled the public and made false and misleading statements. The judge overseeing the case also said that the company failed to comply with ASIC guidelines on its Vanguard Ethically Conscious Global Aggregate Bond Index Fund.

The ASIC said the company made false statements on various platforms including its disclosure documents, media release, website, YouTube,z and an online representation. The case commenced in July 2023, and it has now concluded with Vanguard admitting to the wrongdoing.

While Vanguard admitted that some securities included in the index were not reviewed properly for ESG requirements, some statements made by the fund were accurate.

For instance, the company noted that the fund did not include companies that operated in the fossil fuel industry. However, according to the ASIC, the company exposed investors to an oil company in Abu Dhabi.

The court will determine the penalty to be imposed against Vanguard on August 1, 2024. By 2021, this fund had more than $1 billion in assets under management.

ASIC’s Commitment to Fight Greenwashing

While commenting about the latest court ruling, the ASIC noted that the outcome demonstrates its focus towards combating misleading advertisements and greenwashing attempts being made by companies offering financial services.

“As ASIC’s first greenwashing court outcome, the case shows our commitment to taking on misleading marketing and greenwashing claims made by companies in the financial services industry. It sends a strong message to companies making sustainable investment claims that they need to reflect the true position,’ the regulator said.

The ASIC has already set up 12 new “Enforcement Priorities” to combat greenwashing. The outcome of this case against Vanguard shows that the firm is proving its effectiveness in addressing this issue in the financial industry.