On 5 June 2024, the Federal Court ruled that LGSS Pty Ltd, as trustee of the superannuation fund Active Super (Active Super) contravened the law with various misleading representations with respect to its investments.
Following ASIC’s win against Vanguard in March 2024, these proceedings covered similar issues regarding the story Active Super had been telling investors about the types of investments it was making. The trend in enforcement actions were recently highlighted by ASIC Chair, Joe Longo, who stated that where ESG disclosures are concerned, “we will want to know the what, how, why and when – the facts behind the marketing”.
Active Super made several claims about its investments, including claiming that there was “No Way” that it would invest in certain companies, such as those involved with gambling and coal mining. However, ASIC demonstrated that despite these claims, Active Super had both directly and indirectly invested in entities including SkyCity Entertainment Group Ltd, Pointsbet Holdings Ltd, Whitehaven Coal Limited and Coronado Global Resources.
Active Super argued that many of these investments were not made by Active Super directly. Its argument focussed on the fact that investors would be able to differentiate between direct and indirect investments, and that on this basis their claims were not misleading. The Court ultimately disagreed, citing the absence of any qualifying statements in Active Super's materials regarding indirect investments or the limited control that they had over these investments.
Specifically, the Court stated: ‘If such a consumer was told, as they were told, that there was “No way” that [Active Super] 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 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.’
The absence of such qualifying statements led the Court to deem the language presented to investors as misleading and deceptive.
This reinforces the need to consider any disclosures in light of how a reasonable consumer would perceive those statements in context. Examples include:
not using absolute language to describe guiding principles;
using consistent, clear, language in relation to the nature of investments (direct / indirect) and the process of applying investment screens; and
taking an objective approach in assessing the logical inferences a consumer would draw e.g. that investments relating to gambling may include companies that run lotteries but investments in companies that derive a small amount of revenue from supplying packaging to tobacco suppliers would still be considered packaging companies by consumers.
The Court declared that the fine imposed will be determined at a subsequent hearing.
Be Vigilant
As greenwashing continues to be a key enforcement focus for ASIC in 2024, we advise all entities to ensure any public statements or commitments are accurate, qualified and can be verified.
Joe Longo recently detailed the development in ASIC’s focus of governance around sustainable representations made to investors as a logical extension of the focus on whether sustainable representations are misleading or deceptive. He provides the example that, in investment management, ASIC is focused on ensuring responsible entities (and their delegated portfolio managers) align with the representations made to investors about their fund’s sustainable investment strategies and objectives.
Joe also highlighted the role that the upcoming mandatory climate disclosures would play not only in bolstering compliance but in improving transparency and standardisation in disclosures.
Guidance published by ASIC about how to avoid greenwashing when offering or promoting sustainability related products can be found here.
If you have any questions regarding ESG commitments or you wish to discuss further, please reach out to a member of our ESG team at Cowell Clarke.
This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.