Vanguard action shows ASIC is serious about greenwashing

On Friday, ASIC issued three infringement notices to investment manager Vanguard, saying it was concerned that product disclosure statements for the Vanguard International Shares Select Exclusions Index Funds may have been liable to mislead the public by overstating an exclusion, otherwise known as an investment screen, that claimed to prevent investment in companies involved in significant tobacco sales.

“Greenwashing is not limited to environmental claims but extends to misleading ethical propositions. Entities which seek to promote ethical investing must ensure their statements are accurate and able to be substantiated,” said ASIC deputy chair Sarah Court.

Ethical Advisers’ Co-op (EAC) director Tim Fitzpatrick said, “Greenwashing is a major issue in our financial system, and so we welcome the action taken by ASIC to crack down on misleading claims.

“As ethical investment becomes increasingly mainstream, instances of what financial market regulators have called misleading marketing, poor product design and other types of greenwashing are certainly rising, regardless of whether it is intentional or not.”

EAC said that greenwashing, a practice where funds falsely claim or exaggerate their environmental, social and governance (ESG) credentials, poses a “major threat to the integrity and reputation of the investment industry”.

EAC’s ‘Leaf Ratings’ analysis was accessed more than 12,500 times over 2021, which the firm said reflected an increased level of consumer awareness and concern about the veracity of ethical and sustainable investment claims.

According to ASIC, the Vanguard Funds were structured to exclude certain investments in tobacco. However, while this screen applied to exclude manufacturers of cigarettes and other tobacco products, it did not exclude companies involved in the sale of tobacco products.

“Investors can feel strongly about not investing in tobacco production, manufacturing and sales, and where tobacco-exclusion investments are promoted, the entity making those claims must be able to substantiate the full exclusion of those investments,” Ms Court said.

Vanguard paid $39,960 in compliance with the infringement notices on 1 December 2022. ASIC reminded that “payment of an infringement notice is not an admission of guilt or liability”.