Court orders Mercer Superannuation to pay an $11.3m penalty

Last year, ASIC commenced proceedings seeking declarations, pecuniary penalties and adverse publicity orders against Mercer Superannuation (Australia) Limited (Mercer) alleging that Mercer had made false or misleading representations and engaged in conduct that was liable to mislead the public in relation to financial services in contravention of sections 12DB(1)(a) and 12DF(1) of the Australian Securities and Investments Act 2001 (Cth) (ASIC Act), about the sustainable nature and characteristics of some of its superannuation investment options. On 2 August 2024, Horan J delivered judgment in Australian Securities and Investments Commission v Mercer Superannuation (Australia) Limited [2024] FCA 850.

Allegations

At all relevant times, Mercer offered a category of investment options known as the ‘Sustainable Plus’ investment options, which were only available to members through the ‘select-your-own’ investment option.

ASIC alleged that, among other things, that:

• from 12 November 2021 to 25 January 2022, Mercer had made statements in a video that was accessible on its website that Mercer’s Sustainable Plus options excluded investments in alcohol, gambling and carbon intensive fossil fuels; and
• from 25 January 2022 to 1 March 2023, Mercer had made a number of statements on its website which suggested that the Sustainable Plus investment options excluded companies involved in alcohol, gambling and carbon intensive fossil fuels.

On or around 21 July 2022, Market Forces published two articles which identified potential greenwashing by Mercer in respect of the Sustainable Plus options. Following the publication of that article, Mercer took steps to amend one of the allegedly false or misleading statements which it made it on its website.

Admissions by Mercer

ASIC and Mercer agreed to a Statement of Agreed Facts and Admissions (SAFA) by which Mercer agreed that each of the representations which were the subject of the proceedings were false and misleading as to the standard, quality, value or grade of the Sustainability Plus investment options and that Mercer had engaged in conduct that was liable to mislead the public as to the nature and characteristics of financial services.

In particular, Mercer had admitted (by the SAFA) that:

• at the time each representation was made, it was liable to mislead the public as to the nature and characteristics of the Sustainability Plus investment options as they actually included investments in companies involved in, or deriving profit from, the production or sale of alcohol, gambling and the extraction or sale of carbon intensive fossil fuels;
• at the time each representation was made, it was also liable to mislead the public as to the future nature and characteristics of the Sustainability Plus investment options because Mercer did not have reasonable grounds to make the representations;
• the representations falsely conveyed that the Sustainability Plus investment options did not, at the time of the representations, include any investments in companies involved in, or deriving profit from, the production or sale of alcohol, gambling or the extraction or sale of carbon intensive fossil fuels, even though, at that time, the Sustainability Plus investment options did include such investments; and
• the representations conveyed that the Sustainability Plus investment options would not, in the future, include any investments in companies involved in, or deriving profit from, the production or sale of alcohol, gambling or the extraction or sale of carbon intensive fossil fuels, even though Mercer did not have reasonable grounds to make such representations.

Penalties

ASIC and Mercer also agreed on the form of a declaration proposed by ASIC, an appropriate pecuniary penalty and the terms of an adverse publicity notice which Mercer are required to display on the suitable investments page of its website for a period of six months. Horan J agreed to grant the relief sought by ASIC on the terms jointly proposed by ASIC and Mercer.

In respect of pecuniary penalties, it was ordered that Mercer pay a pecuniary penalty of $11.3 million to the Commonwealth. Horan J recognised that while the penalty is well below the statutory maximum for a contravention, the penalties were nevertheless substantial and not immaterial to Mercer’s net assets and net profits in the relevant period. It was additionally recognised that the penalty imposed reflects “Mercer’s significant cooperation in reaching a resolution of the proceeding” and that in Horan J’s view the penalties will provide a deterrent to Mercer and any other financial service provider against engaging in similar conduct in the future.

Lessons to be learnt

ASIC continues to pursue cases for greenwashing, following its actions against both Active Super and Vanguard Investments. With its success in this case against Mercer, it is likely to continue to pursue such claims where appropriate.

Financial services providers need to ensure that all public statements made concerning the ESG criteria or suitability of their products are accurate and that they have evidence to support those statements, or risk allegations of greenwashing.

This story was first reported in the most recent edition of our Regulatory Recap.

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Authored by:

Susan Goodman, Partner
Jack Tipple, Special Counsel
Ahmed El-Jaam, Lawyer