ESG Greenwashing Enforcement: ASIC INFO 271 and Federal Court Actions

What is greenwashing

Greenwashing refers to false or misleading representations about the environmental, social or sustainability characteristics of a product or service. These representations can relate to a range of attributes, and are a key focus of regulatory scrutiny.

In financial services, greenwashing claims commonly arise in connection with managed investments, superannuation products and corporate disclosures. ASIC INFO 271 'How to avoid greenwashing when offering or promoting sustainability-related products' provides ASIC's regulatory expectations to help businesses avoid making such misleading claims.

Greenwashing conduct can breach Australian law. It may contravene section 1041H of the Corporations Act 2001 (relating to misleading or deceptive conduct in relation to financial products), section 12DA of the ASIC Act 2001, or the Australian Consumer Law.

Vanguard Investments case

In September 2024, the Federal Court of Australia imposed a $12.9 million civil penalty on Vanguard Investments Australia Ltd. The case, *Australian Securities and Investments Commission v Vanguard Investments Australia Ltd [2024] FCA 1118*, concerned misleading representations made about the Ethically Conscious Global Aggregate Bond Index Fund.

Vanguard had represented that securities included in the fund were screened against ESG criteria. The Court found that these representations were misleading because the screening process had material exclusions and gaps.

This case resulted in the largest greenwashing penalty in Australia at the time of the decision. ASIC has used the outcome to reinforce its expectations regarding the accuracy and substantiation of ESG claims made by financial product issuers.

Active Super and other cases

The Federal Court found LGSS Pty Limited, trading as Active Super, had contravened the ASIC Act and Corporations Act. Active Super made representations about eliminating investments in tobacco manufacturing, gambling, oil tar sands and Russian investments. The Court found that material exposures in these areas remained despite these representations.

In August 2024, the Federal Court ordered Active Super to pay a $10.5 million civil penalty (ASIC v LGSS Pty Limited [2024] FCA 1086). This action follows ASIC’s focus on enforcing against greenwashing in superannuation and managed investments.

ASIC has also taken action against Mercer Superannuation (Australia) Limited, resulting in a $11.3 million civil penalty in August 2024. Both cases demonstrate ASIC’s commitment to addressing misleading ESG representations.

Compliance and best practice

To mitigate enforcement risk, issuers should prioritise ensuring that all ESG claims are clearly defined. Claims must be substantiated by evidence and directly linked to investment screening and selection processes. This includes providing a clear methodology to support any labels used, such as ‘ethical’, ‘sustainable’, or ‘climate-aware’, and transparently outlining any exclusions applied.

Consistency between product disclosure statements (PDS), term disclosure statements (TMD), and marketing material is crucial. These documents must accurately reflect the underlying investment mandate and avoid any misleading impressions regarding ESG characteristics.

The introduction of the mandatory climate-related financial disclosure regime under AASB S2 from 1 January 2025, combined with ASIC’s existing enforcement priorities, means that entities making sustainability claims face heightened scrutiny. Careful attention to compliance is essential.