Greenwashing update – recent claims highlight key issues for managed funds

21 June 2024

In recent years, environmental, social, and governance (ESG) criteria have become a growing focus for investors, driving demand for sustainable and responsible investment options. Fund managers, in particular, have responded by launching products branded as environmentally friendly or sustainable. However, with this trend comes the heightened risk of “greenwashing” — that is, misleading claims about the environmental benefits or credentials of investment products.  

This article considers three recent proceedings commenced by the Australian Securities and Investments Commission (ASIC), which highlight a growing regulatory focus on greenwashing in the financial services sector. The proceedings engage obligations which apply similarly in New Zealand, and offer various relevant takeaways for New Zealand fund managers.

Vanguard Investments

ASIC recently succeeded in a claim against Vanguard Investments in respect of an “ethically conscious” investment fund.1 ASIC alleged that Vanguard had represented (through various Product Disclosure Statements, videos, and presentations) that securities included in the fund had been researched and screened against certain ESG criteria. The fund mirrored a separate Bloomberg index of debt securities which relied on ESG research carried out by US company MSCI.  However, there were various limitations in the screening applied (including that screens only applied to company securities, and did not capture government bonds or other issuers) which was not explained in several of the public comments made by Vanguard. As a result of the various limitations, 46% of the securities in the fund were not subject to any ESG screening.2

Vanguard admitted most of the allegations against it, including that the screening processes were limited and accordingly that “the statements it made concerning ESG screening were false or misleading”.3 On that basis, the Federal Court found that Vanguard’s representations breached the Australian Securities and Investments Commission Act (ASIC Act). 

However, it also found in Vanguard’s favour on a limited number of contested allegations (relating to the extent of the breach in relation to the PDS and website statements, which had correctly described the screens as applying to “companies” rather than all issuers).   

The quantum of the penalty will be addressed at a further hearing in August 2024.

Active Super

Earlier this month the Federal Court held that Active Super, a superannuation fund, had published misleading representations in respect of categories of excluded investments that it marketed to investors.4 Active Super, acting as trustee of the superannuation fund, represented that it would not invest in companies involved with coal mining (among other things). However, the Court found that Active Super held both direct and indirect investments in companies involved in the industries it had purported to exclude and had therefore breached the ASIC Act. As in Vanguard, the penalty will be determined at a later date.

Following the judgment, the ASIC Deputy Chair noted that the case represented the first time a Court had ruled on greenwashing and reflected ASIC’s “commitment to taking on misleading marketing and greenwashing claims made by companies in the financial services industry”.5

Mercer Superannuation

ASIC also has an ongoing greenwashing proceeding against Mercer Superannuation (Australia) Limited.6 The claim relates to Mercer’s advertisement of its ‘Sustainable Plus’ investment options, which purported to exclude investments relating to fossil fuels and sought to attract investors who “are deeply committed to sustainability”. ASIC alleged that, contrary to the representations made to investors, the Sustainable Plus options invested in companies relating to the extraction or sale of fossil fuels, among others. ASIC is seeking several remedies under the ASIC Act, including declarations, financial penalties, and injunctions preventing Mercer from continuing to advertise the relevant statements. 

Recent media reports claim that Mercer and ASIC have settled the proceeding, and that Mercer has agreed to pay a penalty of AU$11.3 million (subject to Federal Court approval).7

Other regulators

In addition to the litigation commenced by ASIC, the Australian Competition and Consumer Commission (ACCC) has also signalled an increasing focus on greenwashing.  It noted in its 2024–25 Compliance and Enforcement Priorities that “the ACCC has a number of in-depth greenwashing investigations” underway, “including in the energy and consumer products sectors.8 The Australian Treasury’s Sustainable Finance Roadmap, released this month, also noted the “continuation of a strong and proactive regulatory approach to greenwashing” as a key priority, meaning that there may yet be further litigation in Australia that fund managers should be aware of.9

Key takeaways for New Zealand businesses

New Zealand’s regulators have not been as active as their Australian counterparts regarding greenwashing. However, the Commerce Commission has issued Environmental Claims Guidelines.10 The Financial Markets Authority (FMA) also indicated last year that it is “sharpening its focus” on greenwashing.11 The FMA regulates the Financial Markets Conduct Act 2013, which contains similar “fair dealing” provisions to those relied on in the three ASIC proceedings discussed above. The FMA has been active in its enforcement of the “fair dealing” provisions, although it is yet to take a specific greenwashing case.

The Australian proceedings therefore provide vivid reminders for fund managers and financial markets participants of the regulatory risks associated with marketing investments to environmentally-conscious investors. It is obviously critical that such investments are not promoted in a manner which is liable to mislead or deceive. It will be particularly important to ensure that any specific limitations with the way in which screens are applied to certain funds are clearly and expressly identified. It will not be sufficient to describe those screens in general terms, and rely on separate more specific qualifications elsewhere.

Greenwashing is not solely a regulatory issue. In November 2023, civil proceedings were filed against Z Energy alleging that Z had engaged in greenwashing through various statements and advertising campaigns.12 The proceedings were brought by Lawyers for Climate Action New Zealand, Consumer NZ and the Environmental Law Initiative and challenge the accuracy of a number of advertisements by Z Energy relating aspects of its emissions reductions initiatives. Z Energy filed a statement of defence responding to the claim in January this year. 

Notably, the claimants in the Z Energy case seek declaratory relief and injunctions not damages. Indeed, greenwashing claimants are often driven by broader motives than just financial recovery, which necessarily elevates the risk that misleading and deceptive ESG statements will be scrutinised in court (even if a regulator is unwilling to do so).  

 If you have any questions about the matters raised in this article, please get in touch with the contacts listed or your usual Bell Gully adviser.

[1] Australian Securities and Investments Commission v Vanguard Investments Australia Ltd [2024] FCA 308[2] At [33]-[34].[3] At [37].[4] Australian Securities and Investments Commission v LGSS Pty Ltd [2024] FCA 587.[5] 24-061MR ASIC wins first greenwashing civil penalty action against Vanguard | ASIC[6] 23-043MR ASIC launches first Court proceedings alleging greenwashing | ASIC[7] Mercer, ASIC agree to $11.3 million fine in greenwashing Federal Court case ([8] Committee for Economic Development of Australia (CEDA) speech 2024 | ACCC[9] Sustainable Finance Roadmap ([10][11] [12] The Statement of Claim is accessible at Statement+of+claim+(endorsed)+(CIV-2023-485-771).pdf (

Disclaimer: This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.