The Australian Securities and Investments Commission (ASIC) wrapped up its greenwashing trilogy earlier this month with Active Super copping a A$10.5 million fine and a shellacking from the High Court judge for a defence based on “a host of contrived arguments”.
Active Super, previously known as Local Government Super (LGSS), was found in breach of regulations last June over “false and misleading representations” of its environmental, social and governance (ESG) credentials.
The $10.5 million punishment handed down this month follows two mega-fines dished out last year by the Australian Federal High Court for similar greenwashing breaches to Vanguard (A$12.9 million) and Mercer (A$11.3 million), respectively.
But despite admitting to “misleading” members with poor ESG disclosures, Active Super pleaded for a maximum fine of A$2.456 million to reflect its not-for-profit status: ASIC was seeking a A$13.5 million penalty to be applied.
Lawyers for the-then A$14.7 billion industry super fund argued Mercer and Vanguard are “huge multinational corporations effectively involved in a profit-making enterprise, where if they make representations to gain new members, that means money is going into their pocket” while a large fine would fall disproportionately on Active Super members.
The fines levied on Vanguard and Mercer “would not have even touched the sides” of the two global firms, according to the Active Super submission.
While the Active Super fine was covered by a Lloyds professional indemnity policy that topped out at A$20 million, the large insurance payout also triggered a tax liability for the fund that imposed some costs on members.
However, Justice O’Callaghan rejected the plea, noting: “To fix a penalty by reference to a sum that seeks to guarantee that fund members suffer no indirect loss by a reduction in their returns would neutralise the sting of any penalty.”
The judge also declined to discount the Active fine because the ESG breaches did not result in any financial losses for members.
O’Callaghan said “the real harm of greenwashing is not the harm to an individual investor, but rather the harm more generally to ESG programs as a whole and investor confidence in them”.
During the substantive hearing, Active Super also fought many of the ASIC charges in an attempt to defray liability, downplaying, for example, lotteries as gambling and arguing a derivative index strategy did not amount to exposure to underlying securities.
According to O’Callaghan, the super fund “ran a host of contrived arguments in its defence at trial”.
By contrast, Vanguard saw its fine set at A$12.9 million instead of A$17 million after accepting most of the ASIC allegations unopposed.
Active Super (or more properly, LGSS), which merged with Vision Super this March to form a A$30 billion fund, was also ordered to cover ASIC legal costs.
Sarah Court, ASIC deputy commissioner, said in a statement: “This case demonstrates ASIC’s commitment to taking on misleading marketing and greenwashing claims made by companies promoting financial services. It is our third greenwashing court outcome, and we will continue to keep greenwashing in our sights.”
The Australian regulator has carried out a blitz of greenwashing actions over the last couple of years with Mercer, Vanguard and Active Super/LGSS serving as high-profile legal examples to the rest of the Australian financial sector – with implications, too, for the NZ industry.
For example, the Vanguard fund at the centre of its case was originally built for the NZ market and is still offered here.
The Australian legal greenwashing decisions also serve as a warning to investment scheme managers on this side of the Tasman about the dangers of marketing funds on ESG (or the like) grounds.
Late last year the Financial Markets Authority (FMA) censured Pathfinder over misleading statements in marketing materials with a couple of other providers understood to be facing greenwashing allegations.
But the FMA is yet to test any fund managers, or KiwiSaver schemes etc, in court over faulty ESG disclosures.