Truthfulness in company operations: ASIC insights

The Australian Securities and Investments Commission (ASIC) scored a major court victory this week against Vanguard, one of the three biggest investment firms globally. 

On the face of it, it is a lesson about “greenwashing”, but it is much broader and sends a strong signal to businesses operating in Australia to be careful when making claims about their activities and the way they operate. 

ASIC brought the civil case against Vanguard alleging (as now proven) that the firm offered an investment product for which the underlying company investments were not assessed or “screened” for environmental, social and governance (ESG) attributes. The court judgement makes clear that the firm mislead the public on a significant number of instances. 

This is not an isolated case for ASIC as an active regulator. In December 2023 ASIC reached an $11.3 million out-of-court penalty settlement with Mercer in ASIC’s first court proceedings alleging greenwashing conduct, and in August 2023 began civil penalty proceedings against Active Super alleging ESG misrepresentations on their website. ASIC Chair, Joe Longo, said in a recent speech "Being a director isn’t meant to be easy".

“Investors have a right to know what they are investing in and, if ESG is driving their investment decision-making, they will want to know their money is being invested in products and projects that genuinely support sustainability. Which means directors need to respond to the calls for transparency and disclosure in this area.” 

This is not just about ESG claims. It is much wider. And it is similar if not the same in New Zealand. In a similar article last year, the New Zealand Financial Markets Authority (FMA) observed: 

“If, in reality, the funds’ investments don’t line up with what they believe they are investing in, that is a misleading value proposition.” 

ASIC has also strongly signalled an ongoing focus on directors and boards managing “foreseeable risks”.  As early as 2018, ASIC commissioner John Price said: 

“Climate change is a foreseeable risk facing many listed companies in the Australian market in a range of different industries. Directors and officers of listed companies need to understand and continually reassess existing and emerging risks (including climate risk) that may affect the company’s business – for better or for worse.” 

The foreseeable risks highlighted here relate to climate change, but they are much broader than this. ASIC is working actively on foreseeable risks, notably with Star Entertainment in a prosecution launched in late 2022. Announcing the prosecution: 

“ASIC allege[d] that Star’s board and executives failed to give sufficient focus to the risk of money laundering and criminal associations, which are inherent in the operation of a large casino with an international customer base.” [emphasis added] 

Lessons and insights for New Zealand directors and boards? 

“Activist regulators” was one of IoD’s Top Five Issues for directors for 2022. It appears that ASIC has been more “activist” in recent years, particularly in relation to directors and boards, than their FMA counterparts when it comes to prosecutions, notably civil proceedings. This difference shouldn’t lull New Zealand directors and boards into a false sense of security. 

There are lessons from the Australian experience that New Zealand directors and board should be mindful of, even in the absence of enforcement action here: 

• If your company is issuing shares or marketing investment products, any claims made in relation to them need to be backed with robust evidence and practice 
• Know your business and operating model, along with good, board-level risk management practices, to ensure that foreseeable risks are clear and being paid attention to 
• Think beyond ESG considerations because these issues apply in a range of other areas too, including cyber security, health and safety and the adoption of digital technologies, including AI, among other increasingly complex areas of business operation. 

And finally, if the FMA and ASIC are comparing notes, expect more activity on this front over time from the FMA, with a particular focus on consumer and investor harm.