The corporate regulator filed proceedings in the Federal Court alleging Vanguard misled investors in relation to its claims about certain environmental, social and governance exclusionary screens it had applied to some funds. The screens are supposed to act to filter out investments that don’t meet standards.

ASIC’s claims were in relation to Vanguard’s ethically conscious global aggregate bond index fund and the regulator said that the total funds or assets under management of the fund were more than $1 billion as of 2021.

ASIC has previously issued more than $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.

Vanguard said it self-identified and self-reported a breach to ASIC in relation to the product disclosure for the fund.

ASIC has alleged in the latest case, Vanguard made false and misleading statements and was involved in conduct that was liable to mislead the public. Some of the companies ASIC alleges the fund was exposed to weere Abu Dhabi Crude Oil Pipeline, Chevron Phillips Chemical Company, Colonial Pipeline Co, Empresa Nacional del Petróleo SA and John Sevier Combined Cycle Generation LLC.

ASIC said Vanguard claimed the index excluded issuers with significant business activities in a range of industries, including those involving fossil fuels, however, ASIC alleged that ESG research was not conducted over a significant proportion of issuers of bonds in the index and therefore the fund.

ASIC alleged 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.

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

ASIC deputy chair Sarah Court said investors were increasingly seeking investment options that excluded certain industries, and investors needed to be able to rely on investment screens to help them make these choices.

“In this case, Vanguard promised its investors and potential investors that the product would be screened to exclude bond issuers with significant business activities in certain industries, including fossil fuels,” Court said.

“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.”

“ASIC will continue its focus on alleged greenwashing conduct and we continue to stress to the financial services industry that if exclusions in investments are promised, these exclusions need to be applied and promises upheld,’ concluded Ms Court.

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.

Vanguard said while it managed the fund in alignment with the index methodology, it had identified that the descriptions of the exclusionary screens published by the index provider and within Vanguard’s Product Disclosure Statement (PDS) were not sufficiently detailed.

“At the time, the description of the exclusionary screens did not provide a sufficiently detailed explanation that certain debt issuers lacking research coverage were still included in the benchmark.  As a result, it is possible the portfolio held exposure to certain securities that may not have been reasonably expected by investors,” Vanguard said.

“The issue was self-identified and self-reported to ASIC, and as soon as the disclosure weakness was identified, Vanguard acted swiftly to inform investors and enhance the disclosure. We have fully cooperated with ASIC’s queries on the matter since it was first self-reported.

“There was never any intention to mislead, but Vanguard recognises it has not lived up to the high standards it holds itself accountable to and apologises for the concern this matter may cause for our clients. ”