Vanguard Investments Australia Faces ASIC Proceedings Over ESG Screens

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The Australian Securities and Investments Commission (ASIC) has initiated civil penalty proceedings against Vanguard Investments Australia, alleging misleading conduct concerning environmental, social, and governance (ESG) screens. 

The dispute centers on Vanguard’s Ethically Conscious Global Aggregate Bond Index Fund. The ASIC accuses Vanguard of misleading statements about ESG exclusionary screens applied to the fund’s investments. The securities in question are anchored on the Bloomberg Barclays MSCI Global Aggregate SRI Exclusions Float Adjusted Index.

Contrary to Vanguard’s claims that the index excluded issuers involved in specific industries, including fossil fuel-related ones, ASIC alleges that the actual ESG research was lacking for a significant number of bonds in the index and, by extension, the fund. 

Investigations by the regulator suggest that as of February 2021, the index included 42 issuers issuing at least 180 bonds that violated the stipulated ESG criteria. Similarly, the fund had a minimum of 14 issuers, releasing at least 27 bonds, which defied the set criteria.

These discrepancies hint at the fund’s exposure to fossil fuel-tied bonds, specifically those linked to oil and gas exploration. This is a significant concern as investors increasingly seek transparency in ESG-related investments. A core part of the fund’s appeal was its promise to screen out industries like fossil fuels.

Sarah Court, ASIC’s deputy chair, emphasised the importance of trustworthiness in ESG screens. She remarked, “Investors are increasingly seeking investment options that exclude certain industries, and they need to be able to rely on investment screens to help them make these choices”. 

The divergence between the promised extensive screening and the conducted limited research and screening by Vanguard is a concern. Court further labelled this discrepancy as “greenwashing.”

ASIC’s action underscores its commitment to upholding transparency and accurate representation in the rapidly evolving ESG-related investment sector. The regulator’s move serves as a stern reminder to investment funds to ensure their ESG claims align with actual practices, preserving investor trust.

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