The Australian Securities and Investments Commission (ASIC ) has sued Vanguard Australia for allegedly misrepresenting the compliance of some of its investments with the environmental, social, and corporate governance (ESG) standards.

ASIC stated today (Tuesday) that Vanguard Investments Australia misled investors by claiming that all the securities under its Vanguard Ethically Conscious Global Aggregate Bond Index Fund had been assessed against certain ESG standards.

Misrepresenting 'Eco-Friendly' Investments

According to the regulator, the investments held in the fund were based on the Bloomberg Barclays MSCI Global Aggregate SRI Exclusions Float-Adjusted Index, and both the fund and the index included companies that allegedly violated the ESG standards.

Specifically, ASIC claims that the securities included in the fund and in the index exposed investors to company investments in oil and gas exploration. Additionally, the accusations of 'greenwashing' stated that the Melbourne-based firm did not conduct adequate screening to exclude non-compliant securities issuers.

The Deputy Chair of ASIC, Sarah Court said: "Investors are increasingly seeking investments options that exclude certain industries, and they need to be able to rely on the screening of investments to help them make these choices. We consider that the screening and research undertaken on behalf of Vanguard was far more limited than what was promised to the investors."

ASIC Issues Infringement Notices

In December last year, Vanguard paid approximately AUD $40,000 in an infringement notice. The payment was made following ASIC's allegations that the company failed to exclude securities issued by companies involved in the sale of tobacco products.

In the case filed today (Tuesday), ASIC disclosed that it had issued infringement notices of AUD $140,000 in response to the concerns about the alleged violations. Besides that, the regulator is seeking court penalties against the investment firm and an order that the company discloses any violations discovered by the court.

ASIC defines 'greenwashing' as "the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable, or ethical."

Thus, the Australian watchdog requires that companies claiming that their investments are ESG-compliant must fully disclose the nature of such investments to investors.