Australian Securities and Investments Commission v Vanguard Investments Australia Ltd [2024] FCA 308 (28 March 2024) is the Australian Securities and Investments Commission’s (ASIC) first win in its fight against “greenwashing”.
The proceeding concerned an investment fund called “Vanguard Ethically Conscious Global Aggregate Bond Index Fund” (Fund).
ASIC alleged that Vanguard made a number of representations that the Fund offered an ethically conscious investment opportunity; that before being included in the Fund securities were researched and screened against applicable environmental, social and governance (ESG) criteria; and that securities that violated applicable ESG criteria were excluded or removed from the Fund (at [3]).
These were alleged to be misleading contrary to the consumer protection provisions of ss12 DB or 12DF of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) because the research and screening of securities against ESG criteria was significantly limited, a large proportion of the securities were not screened against ESG criteria and the Fund included issuers that violated applicable ESG criteria (at [4] and [31]).
The significant limitations of the research and screening were that it was not applied to issuers other than publicly listed companies, only applied to one company with a particular stock exchange “ticker” rather than all, and did not cover companies that derived revenue from the transportation or exploration of thermal coal (at [31]). The result was that 46 per cent of securities in the Fund, constituting 74 per cent of its market value, were not screened (at [34]).
Vanguard admitted most of ASIC’s allegations. The only dispute as to liability was whether statements in the product disclosure statements (PDS) conveyed that all securities were screened against ESG criteria, or only that securities issued by companies were screened (at [43]). Notwithstanding that disputed issue, Vanguard admitted that the representations conveyed by the impugned statements in its PDS and on its website were misleading.
On the issue in dispute, O’Bryan J found that the PDS and website stated in clear terms that the Fund comprised bonds issued by governments, government related entities and companies, but the ESG screening was applied only to companies (at [94]). O’Bryan J concluded that while there were inconsistent statements that may have caused confusion, the inconsistency did not change the meaning of the impugned statements (at [113]). However, the statements were still misleading. O’Bryan J found on the admissions made and the evidence filed that ASIC had established the contraventions admitted by Vanguard (at [74]).
The Court granted declatory relief that Vanguard had contravened ss12DB and 12DF of the ASIC Act and ordered the matter be listed on 1 August 2024 for hearing on the issues of penalty and costs.
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