Vanguard in more hot water with Aussie watchdog

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The Australian  Securities and Investments Commission (ASIC) has started legal proceedings against Vanguard Investments Australia over environmental, social and governance (ESG) claims related to 2021 investments.

Wednesday, July 26th 2023, 12:32PM 1 Comment

by Andrea Malcolm

The regulator alleges misleading conduct over some of the ESG exclusionary screens in Vanguard’s Ethically Conscious Global Aggregate Bond Index (Hedged) fund.  The fund comprises the ETF, AUD hedged, and NZD hedged classes of units.

ASIC is accusing Vanguard of representing all securities in the fund as being screened against certain ESG criteria. The fund was marketed to investors seeking, amongst other things, securities with an ethically conscious screen.

The fund was based on the Bloomberg Barclays MSCI Global Aggregate SRI Exclusions Float Adjusted Index Index, which Vanguard claimed excluded issuers with significant business activities in a range of industries, including fossil fuels.

But Vanguard did not conduct research over a significant proportion of bond issuers in the index and therefore the fund. 

ASIC says in February 2021 the index and the fund included issuers that violated the applicable ESG criteria, including; for the index, 42 issuers of at least 180 bonds; and for the fund, at least 14 issuers of at least 27 bonds. 

According to ASIC these bonds exposed funds to investments tied to fossil fuels, including oil and gas exploration.

ASIC deputy chair Sarah Court says, “We know that investors are increasingly seeking investment options that exclude certain industries, and investors need 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.

“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 alleges Vanguard misled the public in product disclosure statements published between 7 August 2018 to 17 February 2021, a media release issued in August 2018, in statements on its website, statements made in an interview with Finance

News Network and statements made in a presentation at a Finance News Network fund manager event, both of which were recorded and published online. 

“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,” says Court.

ASIC has issued more than $A140,000 in infringement notices in response to concerns about alleged greenwashing, including three infringement notices totalling $A39,960 against Vanguard for separate greenwashing conduct. 

It is seeking declarations and pecuniary penalties from the federal court and 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.

As at 26 February 2021, the total funds or assets under management of the Vanguard Ethically Conscious Global Aggregate Bond Index Fund was over $1billion. 

Companies investor funds were allegedly exposed to are Abu Dhabi Crude Oil Pipeline (ADCOP), Chevron Phillips Chemical, Colonial Pipeline, Empresa Nacional del Petróleo SA (ENAP), and John Sevier Combined Cycle Generation.

Tags: ASIC

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