On July 24, 2023, the Australian Securities and Investments Commission (ASIC) commenced proceedings against Vanguard Investments Australia Ltd (Vanguard), alleging misleading conduct in relation to the ESG criteria applied to its Vanguard Ethically Conscious Global Aggregate Bond Index (Hedged) Fund (the Fund). The Fund tracks an index called the Bloomberg Barclays MSCI Global Aggregate SRI Exclusions Float Adjusted Index (the Index), which purports to exclude securities based on research and screening against ESG criteria. Between August 2018 and February 2021, Vanguard published twelve product disclosure statements (PDSs) for the Fund, each of which contained a statement that Vanguard does not take into account labour standards, environment, social or ethical considerations when selecting, retaining or realizing investments in the Fund to track the performance of the benchmark index, but that Vanguard has “engaged Bloomberg Barclays to provide an index of securities for the Fund that excludes companies with significant business activities involving fossil fuels, alcohol, tobacco, gambling, military weapons and civilian firearms, nuclear power and adult entertainment”. A majority of the PDSs also directed readers to Bloomberg’s website which contained fact sheets about the index. A fact sheet issued in 2018 stated that the Index “removes issuers with evidence of owning fossil fuel reserves or are involved in certain controversial business lines”. A fact sheet issued in 2020 stated that the index “removes issuers with ties to thermal coal, oil and gas or are involved in certain controversial business lines. The index also excludes issuers with very severe ESG Controversies or Red Flags”. Vanguard also allegedly made similar statements about the ESG screening of the Fund in an interview during the relevant time period. ASIC is ultimately alleging that Vanguard made representations that:
1. Before being included in the Index, and the Fund, securities were screened to assess their applicability against certain ESG criteria; and
2. Securities that did not meet the ESG criteria were excluded from their inclusion in the Index, and therefore the Fund.
ASIC alleges that contrary to these representations, a significant proportion of the bonds in the Index and therefore the Fund were not screened against the applicable ESG criteria. ASIC seeks declarations that Vanguard has engaged in misleading conduct, an order that Vanguard pay pecuniary penalties in respect of that conduct and adverse publicity orders.
The matter is listed for a first case management hearing on August 25, 2023.
Case Documents:
No case documents are available.