In a judgment handed down earlier today (Friday, 2 August), Justice Christopher Horan of the Federal Court held that Mercer made misleading statements on its website about seven “Sustainable Plus” investment options offered by the Mercer Super Trust, of which Mercer is the trustee.

Those statements marketed the Sustainable Plus options as suitable for members who “are deeply committed to sustainability”, as they excluded investments in companies involved in carbon-intensive fossil fuels like thermal coal, with exclusions also purported to apply to companies involved in alcohol production and gambling.

Members who took up these investment options, the court found, had investments in companies involved in industries the website statements said were excluded, namely 15 companies involved in the extraction or sale of carbon-intensive fossil fuels, 15 companies involved in the production of alcohol, and 19 companies involved in gambling.

The matter against Mercer is not the only greenwashing case that has been brought by ASIC.

In June, Active Super was found to have made misleading ESG claims and engaged in greenwashing, following an action brought by ASIC last August. The corporate regulator also brought proceedings against Vanguard last July, for which it secured a partial win in the Federal Court in March.

In October of last year, this brand published a feature on the legal implications of greenwashing and the rise of sustainability.

Horan J said: “The contraventions admitted by Mercer are serious.”

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“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,” His Honour said.

“It is vital that consumers in the financial services industry can have confidence in ESG claims made by providers of financial products and services.

“As is the case in many other industries, consumers may place great importance on ESG considerations when making investment decisions. Any misrepresentations in relation to ESG policies or practices associated with financial products or services, whether as an aspect of ‘greenwashing’ practices or otherwise, undermines that confidence to the detriment of consumers and the industry generally.”

This said, Horan J noted that “recognition should be given the mitigating circumstances”, including the level of cooperation by Mercer in the course of the proceeding brought by ASIC, and the remedial and corrective action taken to prevent future contraventions.

While the penalty for the conduct is “well below the statutory maximum for a contravention, particularly in respect of the first period”, the penalties are nevertheless substantial and are not immaterial relative to Mercer’s net assets and net profits in the relevant period, His Honour explained.

“The penalties reflect Mercer’s significant cooperation in reaching a resolution of the proceeding,” he said.

“I have taken into account the fact that ASIC has agreed to the proposed penalties and that, while the outcome may represent a compromise reached between the parties, it is consistent with ASIC’s considered estimation of the penalty necessary to achieve deterrence and avoid the risks and expense of the litigation. In my view, the penalties will provide a deterrent to Mercer and any other financial service providers against engaging in similar conduct in the future.”

Speaking following the judgment, ASIC deputy chair Sarah Court said: “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.”

“Today’s matter is a strong example to the financial services industry of the greenwashing action we will take.

“We will continue to monitor the market for ESG-related claims that cannot be validated by evidence to ensure the market is fair and transparent.”

Mercer is set to pay ASIC’s costs for both the investigation and subsequent proceedings, in the amount of $200,000.