The Financial Markets Authority (FMA) has remained tight-lipped about the implications of an Australian legal ‘greenwashing’ action launched against Vanguard last week over a fund marketed on both sides of the Tasman.
In an action filed in the Federal Court in Victoria, the Australian Securities and Investments Commission (ASIC) allege Vanguard made “false and misleading statements” in regards to Ethically Conscious Global Aggregate Bond Index Fund.
While ASIC has no jurisdiction in NZ, the court documents cite the Kiwi dollar hedged version of the Vanguard fund in the breach list along with the Australian iterations of the product.
According to the latest Vanguard update, the NZ dollar hedged option held about $900 million as at the end of June including approximately $700 million of wholesale money: the ‘ethically conscious’ bond vehicle has been a popular choice for some KiwiSaver providers including Simplicity until it switched to German provider DWS earlier this year.
In a statement the FMA said it was “aware of the action being taken by ASIC”.
“The case is before the courts so we cannot comment on those matters. In terms of NZ obligations, the fund is offered in New Zealand via the mutual recognition regime. Vanguard has notification obligations via the Disclose Register in relation to ASIC’s action.”
Vanguard updated Disclose on the ASIC move late on Friday afternoon.
The NZ regulator faced a similar quandary when ASIC pinged Vanguard last year over greenwashing charges in an international shares fund and earlier in 2023 following a legal action against Mercer in Australia.
While Vanguard paid a $40,000 fine in the wake of the December 2022 greenwashing allegations in Australia, the new ASIC court action looms as a more damaging PR risk for the well-regarded index fund giant.
In particular, the Australian regulator argues that the Vanguard bond vehicle was exposed to at least 14 issuers and 27 securities that breached the environmental, social and governance (ESG) criteria disclosed to investors – mostly fossil fuel-related.
The ASIC court filing argues Vanguard misrepresented the screening power of the underlying index – provided by MSCI – to fulfil the bond fund ESG claims.
For example, as at February 2021 “46% of bonds in the Fund and 74% of bonds in the Fund by market value were from issuers that were not researched by MSCI”, the court document says. The MSCI index included at least 42 issuers and 180 bonds “that violated the applicable [Vanguard fund] ESG criteria”.
Sarah Court, ASIC deputy commissioner, said in a statement that investors seeking to avoid certain sectors should be able to rely on negative screening claims.
“In this case, Vanguard promised its investors and potential investors that the product would be screened to exclude bond issuers with significant business activities in certain industries, including fossil fuels,” Court said.
“We consider that the screening and research undertaken on behalf of Vanguard was far more limited than that being promised to investors, and we consider this constitutes another example of greenwashing.”
The greenwashing charges come, too, as Vanguard Australia is looking to restructure its wholesale fund suite by sweeping most investors into the new Personal Investor Account platform.
Under the proposals due to face a unitholder vote on August 15, Australia-based investors in the Vanguard wholesale funds would shift to the Personal Investor service that was established in 2020.
However, the proposed change would not impact NZ (and other foreign) unitholders in the Australian Vanguard wholesale funds while investors, including institutions, would be able to opt out prior to August 13.