The Australian Securities and Investments Commission (ASIC) has lodged civil penalty proceedings in federal court against Vanguard Investments Australia over alleged misleading conduct in regard to ESG investment screening.
The proceedings were announced in a July 25 statement, in which the regulator alleged that “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 were screened against certain ESG criteria.”
“The fund was marketed to investors seeking, amongst other things, securities with an ethically conscious screen,” ASIC added.
The fund’s investments were held on the Bloomberg Barclays MSCI Global Aggregate SRI Exclusions Float Adjusted Index, which Vanguard claimed excluded issuers with significant business activities in industries such as fossil fuels.
However, this is disputed by ASIC, which has alleged that ESG research was not conducted over a significant proportion of issuers of bonds in the index, and therefore the fund. ASIC noted that as of February 2021, the index and fund included 42 and 14 issuers, respectively, that violated the applicable ESG criteria.
“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,” said ASIC Deputy Chair Sarah Court.
“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,” she contended.
Vanguard Investments Australia self-reported the issue to the regulator as soon as it identified the weakness in disclosure, the company said in a statement to Reuters.
The date for the first case management hearing is yet to be scheduled by the court. ASIC is seeking declaration and pecuniary penalties, as well as orders requiring Vanguard to publicize any contraventions found by the court.