Written by June Ahern, Senior Content Editor in Company Law, Wolters Kluwer.

In this landmark decision, the Federal Court has ordered Mercer to pay an $11.3 million penalty after Mercer admitted that it had made misleading statements concerning the sustainable nature and characteristics of some of its superannuation investment options.

Mercer has also agreed to pay ASIC’s costs in the proceedings.

The case against Mercer

The Federal Court found that Mercer made misleading statements on its website concerning seven “Sustainable Plus Investment Options offered by the Mercer Super Trust, of which Mercer is the trustee.

Sustainable Plus Investment Options were available to members of the Mercer Super Trust via the “Select your own” investment options, which permit members to blend options in order to suit their needs. Such options were:

• marketed “for potential members that are deeply committed to sustainability” – because they excluded investments in companies involved in carbon intensive fossil fuels, such as thermal coal, as well as companies involved in alcohol production and gambling,
• comprise a higher proportion of sustainability-themed assets, and
• are subject to additional investment exclusions of companies in certain sectors.

However, the Federal Court found that members who took up the Sustainable Plus options, had in fact, investments in companies which were involved in the industries which Mercer’s website statements held were excluded. This included:

• 15 companies involved in the extraction or sale of carbon intensive fossil fuels – including AGL Energy Ltd, BHP Group Ltd, Glencore PLC and Whitehaven Coal Ltd,
• 15 companies involved in the production of alcohol – including Budweiser Brewing Company APAC Ltd, Carlsberg AS, Heineken Holding NV and Treasury Wine Estates Ltd, and
• 19 companies involved in gambling – including Aristocrat Leisure Limited, Caesar’s Entertainment Inc, Crown Resorts Limited and Tabcorp Holdings Limited.

When handing down his decision, Justice Horan remarked that:

“the contraventions admitted by Mercer are serious. They arose from failures by Mercer to implement adequate systems to ensure that ESG claims in relation to its superannuation products were accurate, and to monitor and enforce the application of any sustainability exclusions associated with such ESG claims”.

Justice Horan went on to state that it was vital for clients in the financial services industry to have confidence in ESG claims made by the providers of financial products and services. This is because, like in several other industries, clients may place great importance on ESG considerations when making investment decisions. Hence, any misrepresentations in relation to ESG policies or practices associated with financial products or services, such as greenwashing, undermines that client confidence to the detriment of the market and industry in general.

What is greenwashing and ESG reporting?

Greenwashing is the process of conveying a false impression, or providing misleading information, concerning a company’s products, approach and performance. For example, alleging that a company offers financial products which are more environmentally or socially sound, or sustainable, than they actually are. Such false claims can have serious consequences, including penalties, reprimands, litigation and prosecution, not to mention long-term damage to brand and market reputation.

ESG reporting is the disclosure by a company of its environmental, social and corporate governance data. As with all corporate disclosure requirements, the purpose of ESG reporting is to shed light on a company’s ESG activities, particularly with regards to transparency for investors. ESG reporting is also an effective way for organisations to demonstrate that they are meeting their sustainability goals and that their ESG projects are genuine ie. not just telling clients what they want to hear, or worse, engaging in greenwashing.

ASIC is a supporter of smart ESG investing.

ASIC weighs in on the judgment

In response to the Federal Court’s judgment, ASIC Deputy Chair, Ms Sarah Court, stated that:

“This was ASIC’s first greenwashing case brought before the Federal Court; a landmark case both for ASIC and for the financial services industry. It demonstrates the importance of making accurate ESG claims to investors and potential investors.”

Ms Court went on to state that the Federal Court matter served to set a strong example to the financial services industry of the greenwashing action which the regulator is prepared to take.

There is little doubt that, in order to ensure that the market is fair and transparent for all, ASIC will continue to monitor the market for ESG-related claims which fail to be substantiated or validated by evidence.

Further reading

ASIC’s Information Sheet 271 – How to avoid greenwashing when offering or promoting sustainability-related products – provides useful guidance for responsible entities of managed funds and super fund trustees on how to avoid the practice of greenwashing when offering or promoting sustainability-related or ethical products and investments.

ASIC’s Report 763 – ASIC’s recent greenwashing interventions – outlines ASIC regulatory interventions made between 1 July 2022 and 31 March 2023 in relation to greenwashing concerns.

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