Greenwashing penalty action win for ASIC

  • Legal update

    02 April 2024

Greenwashing penalty action win for ASIC Desktop Image Greenwashing penalty action win for ASIC Mobile Image

On 28 March 2024, the Federal Court found that Vanguard contravened the Australian Securities and Investments Commission Act 2001 (ASIC Act) in relation to representations about the ESG exclusionary screens that were applied to the Vanguard Ethically Conscious Global Aggregate Bond Index Fund (Fund).

Links to the judgment and the media release are available here and here.

Who needs to read it?  Why?

The outcome of this case should be considered by New Zealand fund managers, and serves as a reminder of the caution that must be taken when making ESG claims. ASIC’s information sheet referred to in their media release may also be a useful reference point for New Zealand fund managers as the FMA has not yet issued anything similarly focused on greenwashing for fund managers.

What does it cover?

The representations that were the focus of the hearing were made in 12 product disclosure statements, a media release, statements on Vanguard’s website, in an interview, and a presentation published online (Representations).

The claim made was that 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 companies with significant business activities in a range of industries, including those that involve fossil fuels. It later admitted that a significant proportion of securities in the Index and the Fund were from issuers that were not researched or screened against applicable ESG criteria. However, the Fund was invested in activities linked to oil and gas exploration. Justice O’Bryan said some Representations made were “liable to mislead the public as to the nature, the characteristics and the suitability for their purpose” of the Fund if investors wanted to invest ethically.

ASIC’s argument that documents which referred to external sources that held misleading information made the original documents misleading was rejected. Instead, it was Judge O’Bryans view that this argument involved an “unhelpful blurring of concepts of context and causation”, and relied on the assumption that investors read these additional materials without any proof as to that fact.

A further hearing in August 2024 will consider the appropriate penalty.

Our view*

This is ASIC’s first greenwashing case outcome, and shows its commitment to tackling misleading or greenwashing claims made by financial services institutions. ASIC deputy chair, Sarah Court, said the ruling sends a warning to the wider fund industry and “sends a strong message to companies making sustainable investment claims that they need to reflect the true position.”

The actions of Australian regulators can often be seen as an indicator of the actions that may be taken by New Zealand regulators, and should serve as a reminder of the caution required when making ESG claims and a call to action for all fund managers to review due diligence processes to ensure they are adequately robust to consider verification of ESG claims. 

In ASIC’s media release on this judgment, it referred to its Information Sheet 271 - How to avoid greenwashing when offering or promoting sustainability-related products. For New Zealand fund managers, this may be a helpful resource as it provides information on how to avoid greenwashing when offering or promoting sustainability-related or ethical products and investments. The FMA (while releasing some statements on greenwashing), is yet to release guidance on this topic, so until then the approach taken by ASIC can be used to help fund managers take a critical approach to their statements, and understand where the key risks lie.

For companies more generally making ESG claims, see our previous FSU on greenwashing do’s and don’ts, the FMA’s Disclosure framework for integrated financial products (financial products that incorporate non-financial features) and the FMA’s later thematic review on Integrated financial products: Review of managed fund documentation.

What next?

If you have any questions in relation to greenwashing and ESG claims more generally, please contact one of our experts.

* We are expressing no views on the Australian law, but see the case as a useful reminder for NZ fund managers to take great care with non-financial claims.


This article was co-authored by Elise Plunket, a Solicitor in our Financial Services team.