The Australian Securities and Investment Commission has said that Vanguard Investments Australia has been fined $12.9 million for making misleading claims about ESG exclusionary screens.

The Australian Federal Court has ordered Vanguard Investments Australia to pay the penalty after the firm made claims relating to its Vanguard Ethically Conscious Global Aggregate Bond Index Fund.

Vanguard’s fund used the Bloomberg Barclays MSCI Global Aggregate SRI Exclusions Float Adjusted Index and admitted that certain securities in fund were from issuers that were not screened against applicable ESG criteria.

Justice O’Bryan said, “Vanguard’s contraventions should be regarded as serious. Vanguard’s misrepresentations concerned the principal distinguishing feature of the Fund, being its “ethical” characteristics. Vanguard developed and promoted the Fund in response to market demand for investment funds having those characteristics.

By its misleading conduct, Vanguard misrepresented the “ethical” characteristics of the Fund. Approximately 74% of the securities in the Fund by market value were not researched or screened against applicable ESG criteria. Further, Vanguard benefited from its misleading conduct. The misrepresentations enhanced Vanguard’s ability to attract investors to the Fund, and enhanced Vanguard’s reputation as a provider of investment funds with ESG characteristics, as compared to what would have been the case if Vanguard had accurately disclosed the ESG screening limitations and the Fund’s exposure to issuers engaged in the excluded industries.”

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