Understanding ASIC’s greenwashing action
What you need to know:
- The Australian financial regulator, ASIC, has announced a greenwashing case against Vanguard Investments Australia regarding their Vanguard Ethically Conscious Global Aggregate Bond Index Fund (Hedged).
- ASIC’s action relates to allegations of false and misleading statements by Vanguard in the period of 2018 to 2021.
- On 25 September 2024, the Federal Court ordered Vanguard to pay a pecuniary penalty of $12,900,000 for contravening Australia’s financial services laws.
- This Vanguard product is certified by RIAA, and was most recently assessed in September 2022, at which time the product passed our assessment as meeting our RI Standard. RIAA has also conducted a spot check on the product both since the ASIC allegations were revealed, and the penalty was issued.
- Based on the information we have reviewed, we are satisfied that the issues that are the subject of these proceedings have been corrected, and the current disclosures of the product meet the requirements of RIAA Certification over its current certification term.
(Updated on 23 October 2024)
Regulatory action against greenwashing continues
RIAA takes greenwashing incredibly seriously. We work on a daily basis to articulate, review and strengthen responsible investment standards, policies and products in Australia and Aotearoa New Zealand, with a goal to reduce greenwashing.
For the last 15 years, RIAA’s Certification Program has been verifying the disclosures and practices of financial services products in our markets, to ensure products are clear, transparent and truthful in their claims – ie. not misleading.
In light of recent actions by the Australian Securities and Investments Commission (ASIC) against Vanguard Investments Australia for statements made between 2018 and 2021 in relation to a product certified by RIAA, we want to assure our members that we are satisfied that the issues raised during these proceedings were remedied in February 2021, and the product currently meets the requirements of RIAA Certification.
RIAA was actively engaging with Vanguard before the court action initiated by ASIC.
The ASIC action alleges misleading statements made by Vanguard between 2018 and 2021. Vanguard took corrective measures in February 2021, updating the product’s Product Disclosure Statement (PDS) to address the issues raised by the regulator, and that the regulator has not raised any allegations that relate to the product since that time.
RIAA’s role as a responsible investment product certifier
The product in question – Vanguard Ethically Conscious Global Aggregate Bond Index Fund (Hedged) was most recently assessed by RIAA in September 2022, at which time it met the Responsible Investment (RI) Standard. Our review at the time imposed conditions on the product that resulted in further strengthening beyond the expectations of ASIC, namely ensuring a greater coverage of the underlying assets by the RI exclusions.
RIAA has also conducted a spot check on the product to understand whether ASIC’s July 2023 allegations relating to past behaviour bring any new information to light. Based on the information we have reviewed thus far, we are satisfied that the issues that are the subject of these proceedings have been remedied, and the current disclosures of the product meet the requirements of RIAA Certification. As such the product remains certified.
This is in line with our process to review certified products when the regulator takes action against a provider, to ensure these products continue to comply with the Standard. We have and will continue to remove or suspend products from certification if and when we see shortcomings against our standard or when a fund is misleading or not able to substantiate claims. We undertake a two-yearly review of all certified products that seek recertification, and reassess products more frequently when new information comes to light or where there are material changes to the product.
RIAA also constantly reviews the evolution of standards and regulator expectations in our markets and globally, and will ramp up our processes and standards and build out the criteria against which we assess products for Certification in line with these developments.
RIAA’s approach to fight against greenwashing – getting the policy settings right
Beyond the RIAA Certification Program, much of the focus of RIAA’s policy work is about building the policy settings that will make it harder to greenwash and easier for consumers to navigate the broad suite of responsible investment offerings, and easier for responsible investors to comply with the regulators’ expectations. We have advocated and are making strong progress on many areas important to this objective with a focus on better articulating and lifting industry standards of practice.
Our work to this end includes our Benchmarking Surveys (that set out leading practice frameworks), our Certification Standard and Guidance Notes (such as the guidance on product labelling, on products trading with impact in the label and multi-asset products), as well as our global work to align global definitions of RI strategies such as our current project with the Chartered Financial Analyst (CFA) Institute, the Global Sustainable Investment Alliance (GSIA) and the Principles for Responsible Investment (PRI).
Beyond this standard setting work, many of the policy objectives we have long prosecuted will also help to remove this risk of greenwashing by clarifying standards and improving disclosures.
For example, RIAA has been advocating for strong sustainability disclosures for many years, and new climate disclosure requirements in both Australia and New Zealand will provide consistency of data to provide greater evidence of risk and exposure, as well as whether a fund or company is making progress against commitments. RIAA is actively engaged with the broader International Sustainability Standards Board (ISSB) on sustainability standards that will go beyond climate to provide consistent and comparable sustainability data. Work underway to progress taxonomies of sustainable economic activities in Australia and New Zealand will also play a role in the future as an evidence point for funds and their investments. Better portfolio holdings disclosures that ensure transparency remains critical for improvement in the Australian market in particular. The articulation of leading practice stewardship, such as via a Stewardship Code, will help lift the evidence to support the engagement activities underway by funds.
All of these are parts of the broader sustainable finance building blocks that will play a role in eliminating greenwashing, through transparency and consistent standards.
Staying ahead of the curve
But whilst all of these industry wide standards are in the process of being finalised and formalised, we continue to act to lift standards in line with regulator expectations aiming to ensure our standards are well aligned with the expectations of both the FMA and ASIC.
RIAA will continue to work to lift standards of practice in the market, such that consumers can have faith and trust in responsible investment products.
The future of sustainable finance and next steps for RIAA members
This latest ASIC greenwashing action serves as a reminder of the ongoing battle against greenwashing in our industry. Governments and regulators in Australia and Aotearoa New Zealand will not shy from taking regulatory intervention in ESG product labeling to further lift their efforts to eliminate greenwashing. This is a model we have now seen play out in other major markets, notably the EU, UK and US.
Further regulatory intervention has been hinted at by the Australian Treasurer as a potential initiative in the upcoming Sustainable Finance Strategy agenda, which Treasury will be consulting on in coming months. Alongside any regulatory intervention in ESG product labelling, there is a pivotal role for third-party verification of responsible investment products.
We welcome RIAA members to learn more about our Certification Program, which offers independent product reviews well aligned with regulatory expectations. This can help mitigate risks of greenwashing and uphold transparency in responsible investment practices.
By Shalini Samuel, Head of Certification at RIAA.