Civil penalties for greenwashing have arrived
ASIC just got the largest greenwashing penalty so far against Vanguard in the Federal Court, at $12.9 million, but this is isn’t the first greenwashing case in Australia and it will not be the last. Australia joins many governments, individuals, and civil society organisations in litigating in the interests of the climate.
As Ivano Alogna points out, EU and European nations have seen some of the most high-profile and most successful cases; in Australia, eight Australian teenagers’ class action in the Federal Court claiming negligence under the Environment Protection and Biodiversity Conservations Act 1999 (Cth) was ultimately overturned on appeal, but emboldened other creative pathways to hold governments and corporations accountable for the effects of climate change.
In Australian Securities and Investments Commission v Vanguard Investments Australia Ltd (No 2) [2024] FCA 1086, Vanguard had already admitted that it had breached sections of the Commonwealth Australian Securities and Investments Commission Act 2001 in the provision of its financial services, specifically by claiming that the Vanguard Ethically Conscious Fund, and interests in the Fund “were of a particular standard, quality or grade or had certain performance characteristics or benefits” and “engaged in conduct that was liable to mislead the public as to the nature, the characteristics and the suitability for their purpose of the Vanguard Ethically Conscious Fund, and interests in the Fund”. These were widespread representations across the Product Disclosure Statements, media releases, website, and targeted presentations.
I was not involved in this proceeding, but I’ve been briefed for regulatory prosecutions before and I suspect this proceeding required a wide-ranging investigation to find all these misrepresentations and then it would have required in-house and counsel legal advice about how to frame up these investigative findings to reflect the breach provisions in the ASIC Act, a choice about which breach provisions in the Act, and decisions during the proceedings to first determine liability and then determine penalty. (This is why there are two decisions: Australian Securities and Investments Commission v Vanguard Investments Australia Ltd [2024] FCA 308.)
In the penalty proceeding, O’Bryan J considered that the Act was breached every single time a representation was viewed by a potential investor, but eventually determined the quantum of the penalty by referring to the penalty provisions in the Act and a set of well-established common law principles about setting quantum. The maximum penalty is described across crime and regulation as a ‘yardstick’ for determining quantum; for these greenwashing claims, I wonder whether there will eventually emerge a jurisprudence of comparative sentencing as between like cases?
A lot of regulators in Australia are criticised for not doing enough, but sometimes this kind of highly visible litigation serves as a warning to other regulated bodies. ASIC would probably have assessed the time and resources of pursuing this proceeding against its regulatory approach, like when criminal prosecutors evaluate whether a prosecution is in the public interest. Vanguard is a wholly owned subsidiary of one of the world’s largest investment management companies in the world so I figure that ASIC considered it an appropriate vehicle for deterrence.
Still, many investors are choosing climate-friendly and other ESG-minded options for their investments. I hope these civil penalty proceedings prompt investments funds towards enhanced due diligence and improved options for the ethically conscious investor.