In ASIC’s first case against greenwashing conduct, the court has ordered that Mercer Superannuation (Australia) Ltd pay a landmark $11.3 million penalty after it made misleading statements about sustainable and environmentally-friendly superannuation investment options marketed to its members.

Australian Securities and Investments Commission v Mercer Superannuation (Australia) Limited [2024] FCA 850 represents only the beginning of an increasing effort by ASIC in taking action against ‘greenwashing’, whereby companies make misleading statements or inducements as to the sustainable or environmentally-friendly nature of their practices, products, or services.

Given ASIC’s heightened focus on curbing greenwashing conduct in Australia, it is imperative that businesses of all sizes understand what will constitute greenwashing statements or practices so as to avoid making misleading or false claims that may incur penalties.

Background

Mercer Superannuation (Australia) Ltd is the trustee of Mercer Super Trust, a large superannuation fund which had approximately 850,000 members in April 2023. As many superannuation funds do, Mercer offered a range of superannuation investment options to its member investors, including seven ‘Sustainable Plus’ options for members who wished to make ethically-focused investments.

From 12 November 2021 to 1 March 2023, Mercer made several representations on its website and in a video that Mercer’s ‘Sustainable Plus’ options would exclude investments in any companies relating to:

the production and sale of alcohol;
gambling; and
the extraction or sale of carbon intensive fossil fuels.

ASIC argued that Mercer was not honouring these representations, and alleged that members who selected the Sustainable Plus options were nonetheless having their funds invested in the above excluded industries. This included investments in companies such as Whitehaven Coal Ltd, Budweiser Brewing Company APAC Ltd, and Tabcorp Holdings Limited.

Findings and Reasoning

Mercer admitted to the above contraventions, and agreed to resolve the proceedings with ASIC by jointly seeking a declaration of contravention, along with an agreed penalty of $11.3 million, plus adverse publicity orders and costs orders totalling $200,000.

The court declared that Mercer had contravened the following sections of the ASIC Act:

Section 12DF(1), by misleading the public regarding the nature and characteristics of its ‘Sustainable Plus’ financial services; and
Section 12DB(1)(a), by making misleading representations as to the standard, quality, value, and grade of the ‘Sustainable Plus’ investment options as they existed both at the time and in the future.

Justice Horan held that the misrepresentations admitted by Mercer were ‘serious’, and ‘arose from failures by Mercer to implement adequate systems to ensure that ESG [environmental, social and governance] 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’.

Integral to the court’s finding was the fact that Mercer claimed absolutely that the Sustainable Plus options would ‘exclude investments in certain sectors deemed not to be sustainable’ and ‘will not invest in alcohol, gambling and carbon intensive fossil fuels like thermal coal’.

The wording of these representations on absolute terms meant that any investment in the excluded industries whatsoever was not permitted and was considered misleading. Though there were disclaimers directing investors to the PDSs which themselves referred to investment booklets relating to the sustainability exclusions, the Mercer website did not include direct links to this information.

Though it would be impossible to calculate how many times each representation was viewed on Mercer’s website or video, Mercer accepted that each instance would constitute a separate contravention of the law. The court estimated that there would be hundreds or thousands of individual contraventions, though engaging in this kind of calculation would be an ‘arid exercise’ in this case.

Mercer’s penalty was mitigated by their willingness to cooperate with ASIC in resolution of the dispute, as well as commitments undertaken by them to prevent future contraventions.

Key Takeaways

ASIC has identified greenwashing as a key enforcement priority since 2023, meaning financial services businesses need to be especially proactive in assessing risk management when making representations about ‘green’ practices.
This case represents the first civil penalty obtained by ASIC for greenwashing in Australia, although the ACCC has also been active in regulating these claims for non-financial services businesses.
The decision is indicative of the increasing market demand for sustainability-related products, and particularly financial products.

What you can do to avoid greenwashing:

Monitor regulatory and legislative changes in the greenwashing space, to ensure your business is addressing the current requirements;
Check carefully before using absolute language when making claims about your business or its products or services. Be clear and specific, but ensure your claims are substantiated with documented evidence.
Ensure that any qualifiers or disclaimers regarding green statements are easily accessible and clearly displayed. Where you wish to refer clients to other materials with further information, ensure direct links are made to these on the same page as the statement itself.
Create compliance frameworks to ensure promotional materials relating to sustainability or environmentally friendly products or services are thoroughly checked by your legal and compliance teams and more broadly understood by the whole of the business, to avoid inadvertent publishing of misleading statements.
If misleading statements or conduct is brought to your attention, remove the erroneous material from public view immediately and seek legal advice.

If you are unsure whether you have made representations regarding ESG criteria that may be misleading or deceptive or need advice in respect of the above, please contact Inshani Ward or Alicia Hill. Contacts are below.

Alicia Hill
Principal
T: +61 3 9611 0180 | M: +61 484 313 865
E: ahill@sladen.com.au

Inshani Ward
Senior Associate
T: +61 3 9611 0110 | M: +61 413 557 157
E: iward@sladen.com.au