The fund, the Vanguard Ethically Conscious Global Aggregate Bond Index Fund, launched in 2018, offered investors with exposure to international fixed income investments, and claimed to apply screens to exclude companies with activities related to areas including fossil fuels, alcohol and tobacco. The fund followed the Bloomberg Barclays MSCI Global Aggregate SRI Exclusions Float Adjusted Index, which Vanguard claimed excluded issuers with significant activities in these areas.
ESG Today reported that in a lawsuit launched last year by Australia’s corporate, markets, and financial services regulator, the Australian Securities & Investments Commission (ASIC), alleged that ESG research was not conducted over a significant proportion of the bond issuers in the fund, exposing investors to investments with ties to fossil fuels, including issuers such as Chevron Phillips Chemical and Abu Dhabi Crude Oil Pipeline, among others.
Watching Over Greenwashers
The suit by ASIC forms part of a series of greenwashing-focused actions by the regulator, including cases against Marsh McLennan company Mercer Superannuation and superannuation fund Active Super. The cases follow a warning by ASIC Chair Joseph Longo to providers of investment funds and financial products that the regulator was watching out for misleading sustainability claims, and that it was providing guidance for fund managers and issuers to keep clear of greenwashing.
Following the launch of the suit in 2023, Vanguard is reported to have said that it self-identified and self-reported to ASIC in early 2021, after discovering that the descriptions of the exclusionary screens made by the index provider and in Vanguard’s disclosure statements “did not provide a sufficiently detailed explanation that certain debt issuers lacking research coverage were still included in the benchmark,” making it possible for the fund to hold securities “that may not have been reasonably expected by investors.”
ESG Today reported that Vanguard informed investors and enhanced the disclosure of the fund. The investment manager also admitted in a hearing in court that it had made false and misleading claims about the fund.
The court found Vanguard guilty of making misleading claims in March 2024, advancing the case to consider penalties. At the penalty hearing, ASIC sought penalties of A$21.6 million, while Vanguard, accepting that a penalty ought to be imposed, suggested an appropriate penalty in the range of A$9 million to $11.25 million.
