The Australian Securities and Investments Commission (ASIC) has lodged civil penalty proceedings in the Federal Court against Vanguard Investments Australia. The regulator alleges misleading conduct in relation to claims about certain environmental, social and governance (ESG) exclusionary screens applied to investments in a Vanguard fund.

ASIC alleges 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 (Hedged) were screened against certain ESG criteria. The Fund was marketed to investors seeking, amongst other things, securities with an ethically conscious screen.

Investments held by the Fund were based on an index called the Bloomberg Barclays MSCI Global Aggregate SRI Exclusions Float Adjusted Index. Vanguard claimed the Index excluded issuers with significant business activities in a range of industries, including those involving fossil fuels.

However, ASIC alleges that ESG research was not conducted over a significant proportion of issuers of bonds in the Index and therefore the Fund.

As at February 2021, ASIC alleges the Index and the Fund included issuers that violated the applicable ESG criteria, including:

• for the Index, 42 issuers which collectively issued at least 180 bonds; and
• for the Fund, at least 14 issuers that collectively issued at least 27 bonds.

The Commission alleges that these bonds exposed investor funds to investments which had ties to fossil fuels, including those with activities linked to oil and gas exploration.

ASIC 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.

The regulator has issued over $140,000 in infringement notices in response to concerns about alleged greenwashing, including three infringement notices totalling $39,960 against Vanguard for separate greenwashing conduct.

ASIC is seeking declarations and pecuniary penalties from the Court. ASIC also seeks orders requiring Vanguard to publicise any contraventions found by the Court.

The date for the first case management hearing is yet to be scheduled by the Court.