Australia court finds Vanguard guilty in greenwashing suit

A federal court in Australia has found Vanguard Investments Australia guilty of greenwashing in relation to its ESG fund, the Vanguard Ethically Conscious Global Aggregate Bond Index Fund.

According to ESG Today, this decision comes as a part of the Australian Securities & Investments Commission’s (ASIC) broader efforts to combat misleading sustainability claims within the financial sector. The suit, initiated by ASIC, alleges that Vanguard misled investors by claiming to exclude investments in fossil fuel-involved companies from the fund, a claim found to be inaccurate.

The ruling marks ASIC’s first civil penalty action focused on greenwashing, underscoring the regulator’s commitment to holding companies accountable for sustainable investment claims. ASIC Deputy Chair Sarah Court highlighted the significance of this outcome, stating, “‘As ASIC’s first greenwashing court outcome, the case shows our commitment to taking on misleading marketing and greenwashing claims made by companies in the financial services industry.”

Launched in 2018, the Vanguard Ethically Conscious Global Aggregate Bond Index Fund was promoted as a vehicle for investors seeking international fixed income investments, with explicit exclusions for companies involved in activities related to fossil fuels, alcohol, and tobacco, among others. Despite these claims, ASIC’s allegations pointed out that a significant number of bond issuers in the fund had not undergone ESG research, leading to investments in entities such as Chevron Phillips Chemical and Abu Dhabi Crude Oil Pipeline.

Vanguard has admitted to the court that it made false and misleading claims about the fund, acknowledging a discrepancy in the fund’s marketing materials and the reality of its investments. The investment manager had self-reported to ASIC in early 2021, revealing that the fund’s exclusionary screens and disclosure statements did not adequately reflect the inclusion of certain issuers without ESG research coverage.

This case sets a precedent for the financial industry, sending a clear message that sustainability claims must be accurate and transparent. The court’s decision is not only a win for investor protection but also for environmental advocacy, highlighting the importance of truth in advertising for ESG funds.

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