Ruling

On 2 August 2024, the Federal Court handed down its decision in ASIC’s first landmark greenwashing case, ordering Mercer Superannuation (Australia) Limited (‘Mercer’) to pay a previously agreed pecuniary penalty of $11.3 million. Mercer also agreed to pay ASIC’s costs of $200,000.

The Court found that Mercer made misleading statements regarding its Sustainable Plus investments options, which were described on its website as excluding various types of investments (such as entities involved in fossil fuels, alcohol production, or gambling). These investment options were therefore touted as suitable for individuals that were ‘deeply committed to sustainability’. However, ASIC alleged, and the Court found, that the Sustainable Plus option incorporated investments in, for example, 15 fossil fuel-related companies; 15 alcohol production-related companies; and 19 gambling-related companies.

Mercer admitted and was found to have breached sections 12DB(a) and 12DF(1) of the Australian Securities and Investments Commission Act 2001 (Cth), which sections relate to:

1. false or misleading representations that financial services are of a particular standard, quality, value or grade; and
2. engaging in conduct that is liable to mislead the public as to the nature, characteristics, suitability for purpose, or quantity of financial services.

In concluding on Mercer’s pecuniary penalty, Justice Horan described the contraventions as ‘serious’, noting that they arose from ‘failures by Mercer to implement adequate systems to ensure that environmental, social and corporate governance (‘ESG’) claims in relation to its superannuation products were accurate, and to monitor and enforce the application of any sustainability exclusions associated with ESG claims’.

However, the $11.3 million penalty, while still significant, was much lower than the maximum penalty available to the Court which could have been as high as $22.381M for a single contravention based on Mercer’s annual turnover. Justice Horan stated that the ultimate penalty ordered reflected Mercer’s cooperation with ASIC, noting that it admitted the contraventions at the earliest available opportunity and took remedial and corrective action in relation to the ESG claims associated with the Sustainable Plus options.

Key Learnings

Environmental issues continue to weigh heavily on the minds of consumers, who now pause to also reflect on environmental considerations when faced with business and financial decisions. In 2021, a consumer research report by the Responsible Investment Association Australasia (RIAA) found that 86% of Australians expect their superannuation and other investments to be invested responsibly and ethically. More saliently, 62% of Australians surveyed stated they expect ethical or responsible super funds to perform better in the long term. This figure was only 29% in 2017.

Superannuation funds over the last few years have taken to this trend with gusto, with funds now offering products focused on ESG considerations.

This significant volume of ESG claims or assurances that have saturated the financial services market in recent years did not go unnoticed by ASIC who, in 2021, conducted a review to ascertain the extent to which these financial products are truly as green as they claim.

The decision against Mercer is a clear signal to the financial services industry that ESG-related claims will be scrutinised and financial services providers held to account by the regulator and the Courts. ASIC’s motivation is made only more apparent by two ongoing greenwashing Federal Court cases against Vanguard Investments Australia and Active Super and ASIC having also specifically added D&O to its priorities in the context of Greenwashing. The latter indicates that future cases may move beyond misleading and deceptive conduct to licence obligations and D&O duties.

The financial services industry and wider corporate community are now on notice as to the importance of vetting any ESG claims made about its products, as well as the perennial value in cooperating with ASIC on alleged contraventions.