Investment giant Vanguard has been ordered to pay $12.9 million after admitting it misled investors, in a landmark greenwashing case.
The Federal Court ruled in March Vanguard Investments Australia broke consumer laws by making misleading claims about ethical exclusions applied to one of its index funds.
On Wednesday, Justice Michael O’Bryan handed down the fine and ordered the firm to publish a notice to consumers informing them of the outcome and Vanguard’s conduct.
Vanguard was also ordered to pay the legal costs of the Australian Securities and Investments Commission, which pursued the case after the company self-reported the breach.
Justice O’Bryan earlier found Vanguard contravened the ASIC Act numerous times through representations about environmental, social and governance (ESG) screens applied to its Vanguard Ethically Conscious Global Aggregate Bond Index Fund.
“Vanguard benefited from its misleading conduct,” Justice O’Bryan said on Wednesday.
“The misrepresentations enhanced Vanguard’s ability to attract investors to the fund, and enhanced Vanguard’s reputation as a provider of investment funds with ESG characteristics.”
The index claimed to exclude companies with significant business activities involving fossil fuels, alcohol, tobacco, gambling, military weapons and civilian firearms, nuclear power and adult entertainment.
But the court was told limitations on the screening of companies led to some being included in the index, such as Abu Dhabi Crude Oil Pipeline.
ASIC had been seeking a penalty of $21.6 million, which lawyers Vanguard argued at a penalty hearing in August, could comprise most, if not all, of the company’s net annual profit.
Vanguard’s yearly profits ranged from about $10 million in 2018 to as much as $50 million in 2020, the court was told.
ASIC barrister Meg O’Sullivan KC told the hearing employees at Vanguard had been aware of potential issues with how companies were being screened for ethical exclusion but had failed to take action.
