Australian securities regulator wins greenwashing case against Active Super
Australia’s securities regulator is investigating greenwashing by super funds, making the case that they should exercise control over their indirect holdings. The court is backing it up.
For consumers of financial products down under, Australia’s securities regulator – the Australian Securities and Investments Commission (ASIC) – serves a key function. The ASIC is tasked with consumer protection and to that end, it oversees a broad array of financial market actors including superannuation funds and trustees.
Its broad mandate leaves room for prioritisation. Over the years, some issues have caught the regulators’ eye more so than others. In 2023 and 2024 – greenwashing by the financial sector emerged as one such issue. The ASIC has been true to its word – it has pursued greenwashing cases against both asset owners and asset managers.
A recent judgment by Australia’s Federal Court highlights the state of play:
There is much competition among super funds for new members, and we know that funds seek to attract members with promises their investments will not be exposed to certain industries
The Judgement
Australia’s top court has issued a judgement in which the trustee of Active Super, a superfund with AU$13.5 bn in AUM, which was found to have issued misleading ESG claims.
ASIC had been pursuing the case against Active Super since August 2023. The issue at hand was the environmental screening process that the fund’s website mentioned. When ASIC investigated the fund’s holdings between February 2021 and June 2023, it found exposure to companies in oil and gas as well as coal mining.
At the time, ASIC’s Deputy Chair Sarah Court said, “‘There is much competition among super funds for new members, and we know that funds seek to attract members with promises their investments will not be exposed to certain industries”. Ms. Court went on to stress that funds should not promise exclusions that they do not deliver on.
On 5th June, the court found merit in the ASIC’s argument. The judgement concludes that Active Super put out misleading representations related to its environmental screening.
Indirect holdings
A critical point of contention within the case was whether greenwashing investigations extend to indirect holdings. Active Super’s trustee, LGSS, argued that “an ordinary and reasonable consumer would undoubtedly draw a distinction between holding shares in a company and indirect exposures through a pooled fund”.
In other words, claims made by the fund would not extend to investment decisions it has little to no control over i.e. indirect holdings. The Judge disagreed.
“In my view, that distinction is one which no ordinary reasonable consumer would draw”, opined Justice O’Callaghan.
The precedent
The Active Super greenwashing investigation isn’t ASIC’s first. In February 2023, it launched a similar investigation into Mercer Super. Mercer offers its members a “Sustainable Plus” investment option which ASIC argued was invested in companies the fund says were excluded.
In particular, the option claimed to exclude fossil fuel-intensive businesses. The ASIC investigation found evidence to the contrary – the option seemingly had exposure to Glencore, BHP, AGL Energy and 12 other companies involved in fossil fuel extraction.
In March2024, ASIC won a case against Vanguard Investments, an asset manager, on similar grounds. The court found Vanguard liable for false and misleading statements related to its ESG screening applied to the Vanguard Ethically Conscious Global Aggregate Bond Index Fund. In 2021, the fund managed over $1 bn.
The Vanguard decision was ASIC’s first greenwashing-related court win.
The ASIC investigations highlight the complex reality of designing and marketing “green” financial products. Regulators like ASIC, armed with investigative powers and legal precedent are trying to ensure that the process is not misleading.
However, the ASIC cases also show that identifying greenwashing and defending an investigation in court is no easy feat. In his judgement, Justice O’Callaghan cited legal scholarship that summarises the challenge at hand – green claims have grey areas.
Australia's Federal Court Judgement comes days after a new anti-greenwashing regime entered into force in the UK where organisations who label their funds as green or sustainable will now face greater pressures to evidence their claims.
