Vanguard hit with ASIC greenwashing infringement notices

Vanguard has been hit with Australian Securities and Investments (ASIC) infringements notices around greenwashing.

The regulator said it had issued three infringement notices to Vanguard Investments Australia with respect to alleged greenwashing saying it was concerned that Product Disclosure Statements for the Vanguard International Shares Select Exclusion Index Funds may have been liable to mislead the public by overstating an exclusion, otherwise known as an investment screen claimed to prevent investment in companies involved insignificant tobacco sales.

ASIC acknowledged that enforcement action against greenwashing was a current priority.

Commenting on the move, ASIC Deputy Chair Sarah Court said, ‘Greenwashing is not limited to environmental claims but extends to misleading ethical propositions. Entities which seek to promote ethical investing must ensure their statements are accurate and able to be substantiated.’

The Vanguard Funds were structured to exclude certain investments in tobacco, however, while this screen applied to exclude manufacturers of cigarettes and other tobacco products, it did not exclude companies involved in the sale of tobacco products.

“Investors can feel strongly about not investing in tobacco production, manufacturing and sales, and where tobacco-exclusion investments are promoted, the entity making those claims must be able to substantiate the full exclusion of those investments,’ concluded Ms Court.

Vanguard paid $39,960 in compliance with the infringement notices on 1 December 2022. Payment of an infringement notice is not an admission of guilt or liability. The specific reasons for ASIC’s concerns are set out in the infringement notice which has been published on the Credit and ASIC Act infringements notices register.

Vanguard later issued the following statement:

Earlier this year, Vanguard identified an inadvertent error in the Product Disclosure Statements for its Vanguard International Shares Select Exclusions Index Funds. Vanguard self-reported the error to ASIC, consistent with its statutory obligations, and issued a supplementary Product Disclosure Statement for each affected fund correcting the error.

The error was the same for each of the three funds affected and arose from an unintended misdescription in the PDS of the exclusionary screens applied to the underlying investments in these funds. The relevant webpages and fact sheets were accurate in describing the exclusionary screens.

The PDS issue was promptly addressed by Vanguard shortly after it was identified. The error in the Product Disclosure Statements did not result in any adverse financial impact on investors, and at no time would any of the three funds have held different securities if it had tracked the misdescribed index.

Vanguard has acknowledged the error and fully cooperated with ASIC in relation to this matter. Importantly, ASIC has at no stage suggested that the error arose otherwise than inadvertently.