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Federal Court finds Active Super misled investors on ESG credentials

By Rhea Nath
4 minute read

ASIC commenced civil penalty proceedings against the $13.5 billion fund last year over allegations it misrepresented to the market that it was an ethical and responsible superannuation fund.

The Federal Court has found LGSS Pty Limited, trustee of the superannuation fund Active Super, contravened the law in connection with various misleading representations concerning its environmental, social and governance (ESG) credentials.

In its marketing, the super fund claimed it eliminated investments that posed too great a risk to the environment and the community, including gambling, coal mining, and oil tar sands.

Following the invasion of Ukraine, it made representations that Russian investments were “out”.

But the Federal Court ruled on Wednesday that Active Super actually invested in various securities that it claimed were eliminated or restricted by ESG investment screens from 1 February 2021 to 30 June 2023.

These securities were held both directly and indirectly through ETFs or managed funds.

In his judgment, Justice O’Callaghan rejected Active Super’s claims that an ordinary or reasonable consumer would draw a distinction between holding shares in a company and indirect exposures through a pooled fund.

“I am unable to accept LGSS’ contention that an ordinary and reasonable member of the relevant class would draw a distinction between holding shares in a company and indirect exposures through pooled funds,” he said.

“It seems to me that such a consumer would not draw that distinction, including in particular because there is nothing in the impact reports or on the LGSS website that suggests that the claims that there was, for example, ‘no way’ Active Super would invest members’ funds in gambling, tobacco and so on, was to be read subject to a proviso that there was a way in which it would do exactly that, by investing indirectly, not directly.

“In my view, that distinction is one which no ordinary reasonable consumer would draw.”

Additionally, he found the super fund published misleading representations regarding exclusions applied to gambling, coal mining, Russian entities, and oil tar sands investments on its website, reports, and disclosure documents.

Justice O’Callaghan found that the use of terms like “not invest”, “no way” and “eliminate” were unequivocal and not the subject of any potential qualifications by LGSS’ sustainable and responsible investment policy.

“If such a consumer was told, as they were told, that there was ‘no way’ that LGSS would invest in tobacco or gambling, he or she would not search around for some investment policy that might qualify such statements. Absent some indicator on the face of it, such as a footnote or asterisk with some accompanying statement that the apparently unqualified language was, in fact, something that was subject to qualifications or limitations, they would have no reason to,” he said.

According to the Australian Securities and Investments Commission (ASIC), at the time of publishing these representations, Active Super held direct and indirect investments in companies such as:

  • SkyCity Entertainment Group Ltd and PointsBet Holdings Ltd (Gambling)
  • Gazprom PJSC and Sberbank of Russia (Russian entities)
  • ConocoPhillips and Shell Plc (Oil tar sands)
  • Whitehaven Coal Limited and Coronado Global Resources (Coal mining)

However, although the remaining representations alleged by ASIC were upheld, the court also found Active Super did not engage in misleading representations in relation to its holdings in companies involved in the production of packaging used for tobacco products.

It also found specific representations in the fund’s sustainable and responsible investment policy were not misleading with respect to Russian or oil tar sands investments.

“This is a significant outcome which shows our commitment to taking on misleading marketing and greenwashing claims made by companies in the financial services industry,” said ASIC deputy chair Sarah Court.

“ASIC took this case because it sends a strong message to companies making sustainable investment claims that they need to reflect their true position.”

The matter has been listed for a further hearing at which the court will consider the appropriate form of declaratory relief.

A pecuniary penalty to impose for the conduct will be determined at a later date.

Earlier this year, the corporate regulator won its first greenwashing civil penalty action, against Vanguard Investments Australia, over misleading claims about certain environmental, social and governance (ESG) exclusionary screens applied to investments in a Vanguard index fund.