Australian watchdog sues Mercer in first greenwashing case

The Australian Securities and Investment Commission (ASIC) has taken its first court action for greenwashing against retail superannuation giant Mercer Superannuation (Australia).

Thursday, March 2nd 2023, 7:38AM

by Andrea Malcolm

ASIC alleges Mercer made false and misleading statements about the sustainable nature of some of its superannuation investment options and engaged in conduct that could mislead the public.

Since announcing a crackdown on greenwashing last October, the Australian finance industry watchdog has issued more than A$140,000 in infringement notices in response to concerns about alleged greenwashing, including Tlou Energy, Vanguard Australia, Diversa Trustees and Black Mountain Energy.

But this is the first time ASIC has taken a company to court regarding greenwashing conduct, with ASIC deputy chair Sarah Court saying the move reflects ASIC’s continuing efforts to ensure sustainability-related claims made by financial institutions are accurate.

ASIC alleges Mercer, which oversees A$27.5 billion, made statements on its website about seven ‘Sustainable Plus’ investment options offered by the Mercer Super Trust. They marketed the Sustainable Plus options as suitable for members who ‘are deeply committed to sustainability’ because they excluded investments in companies involved in carbon intensive fossil fuels like thermal coal. Exclusions were also stated to apply to companies involved in alcohol production and gambling.

However, ASIC alleges members who took up the Sustainable Plus options were unknowingly investmenting in industries the website claimed were excluded. There were 15 companies involved in the extraction or sale of carbon intensive fossil fuels (including AGL Energy, BHP Group, Glencore and Whitehaven Coal); 15 alcohol manufacturers (including Budweiser, Carlsberg, Heineken and Treasury Wine Estates); and 19 gambling companies (including Aristocrat Leisure, Caesar’s, Crown Resorts and Tabcorp).

New Zealand watchdog the Financial Markets Authority (FMA) is aware of the case but a spokesperson says it cannot comment on individual companies. Last year the FMA also announced it was ramping up surveillance on greenwashing, especially with regard to KiwiSaver products. However it has yet to issue infringement notices or announce any other action. At the time it conducted a review of ethical investing claims in managed funds, focussing on how well they had applied its Integrated Financial Products guide lines around disclosure.

Mercer New Zealand offers Sustainable and Sustainable Plus products in its KiwiSaver scheme. On its website under ‘Sustainable Investment’ the investment company outlines its “responsible investment journey” which began when it became a founding signatory (as a consultant) of the United Nations Principles for Responsible Investing (UNPRI). It was also named as a leading investor in the Responsible Investing Association of Australasia (RIAA) New Zealand benchmark report for 2020. RIAA leader investor status is entity-specific and does not cover Mercer Superannuation Australasia.

The Portfolio holdings for all its KiwiSaver Investment and Investment Plus funds are linked to at the bottom of the webpage. Holdings listed for the KiwiSaver Sustainable Plus Shares fund includes BHP Group, Pembina Pipeline, Glencore, Rio Tinto and Tokyo Gas. In the Mercer KiwiSaver SIPO July 2021, also linked to on the webpage, the section on Responsible Investment Policy states “The underlying funds exclude Adult Entertainment, Alcohol, Fossil Fuels and Gambling using materiality thresholds which are available by contacting kiwisaver@mercer.com.”

According to the Mindful Money website, which shows what stocks each fund available to New Zealanders invests in, Mercer Sustainable Plus Shares Fund (aggressive) has around 11% of its portfolio in companies involved in fossil fuels (including BHP Group), companies involved in weapons, and companies involved in human rights and environmental violations (including Rio Tinto). It should be noted that last year Mindful Money widened its fossil fuels category to include energy generation companies for being large users of fossil fuels, and the bulk of the stocks listed by Mindful Money as fossil fuels in the Sustainable Plus Shares Fund holdings are energy companies. The fact that Mindful Money includes energy companies in its fossil fuels category has become a bone of contention in the wider industry.

Meanwhile in Australia, ASIC’s Court says, “There is increased demand for sustainability-related financial products, and with that comes the growing risk of misleading marketing and greenwashing. If financial products make sustainable investment claims to investors and potential investors, they need to reflect the true position. If investments in certain industries like fossil fuels are said to be excluded, this promise must be upheld.”

Action against greenwashing is one of ASIC’s 2023 Enforcement Priorities. This proceeding is also the first time ASIC has commenced court action after legislative amendments, arising from the Financial Services Royal Commission, enhanced ASIC’s powers to take action regarding a broader range of superannuation trustee conduct.

ASIC is seeking declarations and pecuniary penalties, injunctions preventing Mercer from continuing misleading statements on its website, and orders for Mercer to publicise any contraventions found by the court. The date for the first case management hearing is yet to be scheduled by the Court.

Tags: Mercer