Vanguard was found guilty in Federal Court of greenwashing
\nHow greenwashing manifests itself, and what investors can do to avoid it
\nStockhead reaches out to BDO Australia for some expert comments<\/p>\n
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In late March, giant fund manager Vanguard<\/strong> was found guilty in court of misleading investors about its $1 billion ethical fund \u2013 in a case brought by competition watchdog, ASIC<\/strong>.<\/p>\n ASIC alleged that Vanguard had not screened all securities in its Ethically Conscious Global Aggregate Bond Index Fund (ASX:VEFI)<\/strong><\/a> against ESG criteria, as it had claimed in marketing materials.<\/p>\n Federal Court Justice Michael Hugh O\u2019Bryan agreed with ASIC, saying in his judgement that:<\/p>\n \u201cVanguard, in trade or commerce, engaged in conduct in relation to financial services that was liable to mislead the public as to the nature, characteristics and the suitability for the purpose of those financial services, and thereby contravened the Australian Securities and Commission Act.\u201d<\/p>\n The guilty verdict was expected, particularly given that Vanguard had actually self-identified and self-reported the breach to ASIC in 2022.<\/p>\n In that report to ASIC, Vanguard said:<\/p>\n \u201cAt the time, the description of the exclusionary screens did not provide a sufficiently detailed explanation that certain debt issuers lacking research coverage were still included in the benchmark.<\/p>\n \u201cAs a result, it is possible the portfolio held exposure to certain securities that may not have been reasonably expected by investors.\u201d<\/p>\n \u00a0<\/p>\n The verdict highlights the continuing problem of systemic greenwashing, which experts say is presenting a significant obstacle to tackling climate change.<\/p>\n \u201cBy misleading the public to believe that a company or other entity is doing more to protect the environment than it is, greenwashing promotes false solutions to the climate crisis that distract from and delay concrete and credible action,\u201d said a recent statement from the United Nations.<\/em><\/p>\n Greenwashing can manifest itself in several ways<\/a> \u2013 some more obvious than others.<\/p>\n Tactics that have been employed include:<\/p>\n *<\/strong> Claiming to be on track to reduce a company\u2019s polluting emissions to net zero, when no credible plan is actually in place.<\/p>\n *<\/strong> Being deliberately vague about a company\u2019s operations or materials used.<\/p>\n *<\/strong> Applying intentionally misleading labels such as \u201cgreen\u201d or \u201ceco-friendly,\u201d which do not have standard definitions and can be easily misinterpreted.<\/p>\n *<\/strong> Emphasising a single environmental attribute while ignoring other impacts.<\/p>\n *<\/strong> Claiming to avoid illegal or non-standard practices that are irrelevant to a product<\/p>\n *<\/strong> Communicating the sustainability attributes of a product in isolation of brand activities (and vice versa)<\/p>\n \u201cGreenwashing is a sin that hurts our planet, and ultimately, our profits,\u201d said the founder of marketing and environmental consultancy TerraChoice<\/em>, Scott McDougall.<\/p>\n \u201cWe must face the reality that our businesses must fundamentally change to embrace sustainability. It\u2019s not just about marketing; it\u2019s about our moral obligation to the planet and future generations.\u201d<\/p>\n \u00a0<\/p>\n According to BDO Australia\u2019s<\/a> National Leader for Sustainability and IFRS & Corporate Reporting, Aletta Boshoff<\/strong>, customers and investors make decisions based on the information companies share about their products.<\/p>\n \u201cWhen organisations make claims that are false, or even unintentionally misleading, people and entities might make purchasing decisions they may not otherwise have made.<\/p>\n \u201cThis can have various impacts, from financial to environmental, reputational, and \u2013 ultimately \u2013 trust,\u201d Boshoff said.<\/p>\n Australian regulators are beginning to clamp down hard on these violations.<\/p>\n Across 2022 and 2023, regulators and governing bodies \u2013 including the Australian Competition and Consumer Commission (ACCC),<\/em> Australian Prudential Regulation Authority (APRA),<\/em> the ASX<\/em>,\u00a0Australian Securities & Investments Commission\u00a0(ASIC)<\/em>, and\u00a0Clean Energy Regulator\u00a0(CER)<\/em> \u2013 have stepped up their focus on greenwashing.<\/p>\n In March 2023 for example, the ACCC shared its initial findings from an\u00a0investigation into greenwashing, conducted via an \u2018internet sweep\u2019. The sweep reviewed the websites of 247 organisations, finding that some 57% made \u2018concerning\u2019 environmental claims.<\/p>\n Boshoff advised that when consumers or investors are looking at marketing materials related to the environmental performance or impacts of a product, they should consider three things:<\/p>\n *<\/strong> Is the statement accurate? Can it be verified? \u00a0<\/p>\n Stockhead<\/em>\u00a0reached out to BDO, asking the company how organisations and its clients can stay clear from making misleading ESG claims or statements.<\/p>\n BDO has replied with the following 7 key points:<\/p>\n 1. Establish governance around sustainability\/ESG risks (including all statements and reporting) and opportunities at your organisation.<\/p>\n 2. Establish clear oversight responsibilities for the Board and\/or a committee of the Board. <\/p>\n \u201cCurrently at most of our clients, the Audit & Risk Committee are responsible for oversight over sustainability risks and opportunities, mainly driven by imminent mandatory sustainability reporting in the annual report in Australia,\u201d said BDO.<\/p>\n 3. Establish and define management\u2019s role in assessing and managing sustainability-related risks and opportunities. This is often the CEO and\/or CFO.<\/p>\n \u201cThe role of the CFO is no longer just focussed on financial reporting, but also adding value around sustainability and broader strategy,\u201d BDO said.<\/p>\n 4. Establish internal controls including systems, policies and processes that ensure the reliability of data and reporting\/disclosures.<\/p>\n 5. Organisations will need to establish a process to involve various internal stakeholders to perform cross-functional reviews (for example, legal, executive management, investor relations, the Board or committee that oversee ESG on behalf of Board, CFO).<\/p>\n 6. It\u2019s important to benchmark against the disclosures of competitors to see how you compare, as well as align with commonly used sustainability standards and disclosure requirements, including those that are industry-specific.<\/p>\n 7. KEY MESSAGE: Whoever is responsible for the financial report should also be responsible for sustainability reporting\/statements\/disclosures. Why? <\/p>\n \u201cUsually this person (CFO) and Committee (Audit & Risk Committee) are already well versed in the scrutiny over these types of reports, the credibility required, the internal controls (systems, policies and processes) that needs to be established, management of underlying data to ensure completeness and accuracy, and engaging with auditors to obtain assurance (reasonable or limited),\u201d said BDO.<\/p>\n \u00a0<\/p>\n <\/span><\/p>\n The post The Ethical Investor: Vanguard\u2019s guilty verdict exposes greenwashing risk for investors<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"Greenwashing tactics<\/h2>\n
How can we avoid greenwashing?<\/h2>\n
\n*<\/strong> If the statement relates to future goals \u2013 is there a plan to achieve this?
\n*<\/strong> Could the statement be considered vague, misleading, an exaggeration, or an overstatement?<\/p>\nStaying clear from making misleading ESG claims<\/h2>\n