The Australian Securities and Investments Commission (ASIC) has announced that it is bringing an enforcement action against Vanguard Investments Australia. The regulator claims in a press release that Vanguard mislead investors regarding their screening processes for ESG funds. Vanguard allegedly made false and misleading statements which led investors to believe that the funds had been screened when they had not. ASIC stated that:
Investments held by the Fund were based on an index called the Bloomberg Barclays MSCI Global Aggregate SRI Exclusions Float Adjusted Index (Index). Vanguard claimed the Index excluded issuers with significant business activities in a range of industries, including those involving fossil fuels.
However, ASIC alleges that ESG research was not conducted over a significant proportion of issuers of bonds in the Index and therefore the Fund.
Many investors are seeking ESG-aligned funds that do not invest in emissions-heavy industries like fossil fuels. Financial services firms have begun offering investors these options, but a lack of quality research and consistent application of screening requirements has led to questionable investment products. Last year the US SEC brought a similar enforcement action against BNY Mellon and regulators appear to be taking ESG fund management seriously.
Greenwashing in the financial services sector continues to pose a challenge for sustainable finance. Some jurisdictions have gone beyond basic enforcement action and have implemented strict taxonomies for sustainable investments. However, jurisdictions continue to grapple with the challenges of sustainable finance. Taxonomy laws have proved challenging to implement in the EU, and a similar law in the UK has faced delays.
