Uncovering greenwashing: ASIC’s latest pursuit of accountability – Judgment against Active Super

Last week, the Federal Court found that the superannuation fund Active Super had made misleading representations concerning its commitment to environmental, social and governance (ESG) factors in its investment decision-making. On 10 August 2023, the Australian Securities and Investments Commission (ASIC) commenced proceedings against the Local Government Superannuation Scheme (LGSS), as trustee of Active Super, alleging Active Super made representations liable to mislead the public in relation to the ESG credentials of its investments. This proceeding serves as a reminder that taking enforcement action against greenwashing remains a key priority for ASIC.

What is ‘greenwashing’?

His Honour, Justice O’Callaghan endorsed a definition of greenwashing in the context of financial product investments as “a term that pertains to the misleading or deceptive disclosures employed by financial institutions to entice environmentally conscious investors into purchasing their financial products that, in reality, fall short of meeting the expected Environmental, Social, and Governance (ESG) or green credentials”.

The fund

Active Super was originally known as the Local Government Superannuation Scheme. By the time of the relevant period Active Super was an ‘open’ fund — that is, any member of the public could invest their superannuation in Active Super, whether or not they were a local government employee.

The representations

During the relevant period, LGSS made a total of 20 representations which ASIC alleged were false or misleading, that Active Super would not make or hold investments in companies that hold more than 10% of their revenue from gambling, derive any of revenue from tobacco or oil tar sands projects, or derive one-third or more of their revenue from coal mining. Following Russia’s invasion of Ukraine, LGSS also represented that Active Super would divest from its Russia investments and cease making or holding further investments in Russia.

The various representations were published on Active Super’s website, in its ‘Sustainable and Responsible Investment (SRI) Policy’, on its social media and in an email sent to its members. The representations included a visual graphic headed ‘Are we in? Or out?’ which ranked certain investments in order of ESG risk, and that depicted investments in tobacco, nuclear weapons, oil tar sands and gambling as investments carrying ’High ESG risk: and were labelled with NO WAY.’

Contrary to the representations made by Active Super, the Court found that Active Super made or held investments, either directly or indirectly, in companies that derived revenue from those industries that the representations expressly excluded save for its holdings in companies involved in the production of packaging for tobacco products and the specific representations made in its SRI Policy were not misleading insofar as they concerned investments in Russian assets or oil tar sands.

Relief sought by ASIC

ASIC alleged that LGSS has contravened section 12DB(1)(a) and 12DF(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) by making false or misleading representations, and engaging in conduct liable to mislead the public in relation to the ‘green’ or ESG credentials of investments made by Active Super.

Separately, the Court was ordered to determine, separately from and prior to all other claims for relief, LGSS’s alleged liability for contravening the above sections of the ASIC Act, and ASIC’s application for declarations in respect of those alleged contraventions which it sought in its originating application.

As discussed above, the Court determined that, save for various exceptions, LGSS did publish representations that were misleading and deceptive in relation to the exclusion criteria that it applied to its investment fund particularly in relation to investments in gambling, coal mining, Russian entities and corporations and oil tar sands investments.

The Court has found that ASIC is entitled to declarations as to contraventions of the ASIC Act which it sought in its originating application, with some exceptions. The matter has been listed for further hearing to determine the appropriate form of declaratory relief.

Lessons to be learnt

As with ASIC’s prosecution against Vanguard Investments, this latest enforcement action demonstrates ASIC’s continued focus on eliminating greenwashing within financial markets and services.

Financial services providers need to ensure the accuracy of claims made concerning the ESG criteria of their investments and services, at the risk of inadvertently engaging in greenwashing and facing enforcement action from ASIC.

If you would like further information, please do not hesitate to contact our team.

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Authored by:

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