Australian Securities and Investments Commission v Mercer Superannuation

INTRODUCTION 1 By an amended originating application and accompanying amended concise statement filed on 13 September 2023, the Australian Securities and Investments Commission (ASIC) alleged that Mercer Superannuation (Australia) Limited (Mercer), a superannuation trustee, made false or misleading representations in contravention of s 12DB(1)(a) of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and engaged in conduct that was liable to mislead the public in relation to financial services in contravention of s 12DF(1) of the ASIC Act. 2 The contraventions, which Mercer admits, arise from representations made by Mercer on its website and in a video published online during four different periods from 12 November 2021 to 1 March 2023 that its "Sustainable Plus" investment options excluded, and would continue to exclude, investments in companies involved in or deriving profit from the production or sale of alcohol, gambling, and the extraction or sale of carbon intensive fossil fuels. The representations were false and misleading because six of those seven investment options actually included investments in such companies, and Mercer's investment policies actually permitted such investments. 3 Conduct of this kind is known as "greenwashing", which broadly speaking involves making false or misleading environmental or sustainability claims in order to make a company or its business appear more environmentally friendly, sustainable or ethical, particularly in order to induce consumers to purchase its products or services or to invest in the company. Greenwashing has a particular manifestation in relation to financial products, including superannuation and life products. As O'Callaghan J recently said in Australian Securities and Investments Commission v LGSS Pty Ltd [2024] FCA 587 at [1]: [i]n the realm of financial product investments, "greenwashing" is a term that: … pertains to the misleading and deceptive disclosures employed by financial institutions to entice environmentally conscious investors into purchasing their financial products that, in reality, fall short of meeting the expected Environmental, Social, and Governance (ESG) or green credentials. These ESG credentials encompass environmental compliance and measures to protect the environment, reduce greenhouse gas emissions, and manage natural resources; social compliance, which evaluates how a company treats its stakeholders; and governance compliance, focusing on appropriate governance practices such as executive transparency and accountability. See Das C, Pearce P and Henson T, "What's Green and Ethical about Greenwashing in the Promotion of Financial Products" [2023] NZLJ 400 at 401. 4 As the parties accept, greenwashing practices have the potential to reduce consumer confidence in environmental, social and corporate governance (ESG) claims, which undermines the efforts of businesses that are pursuing ESG goals accurately and fairly. In addition to harming consumers by depriving them of information relevant to making choices in accordance with environmental, social and ethical values or objectives, false or misleading ESG claims may confer unfair competitive advantages on companies in marketing their financial products and services. To quote from an information sheet published by ASIC in June 2022 (Information Sheet 271: How to avoid greenwashing when offering or promoting sustainability-related products): Greenwashing distorts relevant information that a current or prospective investor might require in order to make informed investment decisions. It can erode investor confidence in the market for sustainability-related products and poses a threat to a fair and efficient financial system. 5 Greenwashing has been identified as a key regulatory and enforcement priority by regulators, including ASIC and the Australian Competition and Consumer Commission. The Senate Standing Committee on Environment and Communications is currently conducting an inquiry into greenwashing, with its report due by 20 November 2024. This increased recognition of greenwashing practices by companies and their impact on consumers is relevant to the consideration of general deterrence to which the Court is required to have regard in determining the appropriateness of any proposed pecuniary penalty and other relief in relation to contraventions of the relevant provisions of the ASIC Act or analogous legislation. 6 ASIC and Mercer have agreed to resolve the present proceeding, and jointly seek declarations of contravention together with pecuniary penalties, adverse publicity orders and costs orders under ss 12GBA(1), 12GBB(1), and 12GLB(1) of the ASIC Act and s 21 of the Federal Court of Australia Act 1976 (Cth) (FCA Act). In particular, Mercer has admitted that it contravened ss 12DB(1)(a) and 12DF(1) of the ASIC Act by making representations that were false or misleading and were liable to mislead the public in relation to financial services, namely, by falsely representing that certain superannuation investment options offered by it excluded investments in companies involved in or deriving profit from the production or sale of alcohol, gambling and carbon intensive fossil fuels. 7 The parties have filed: (a) a statement of agreed facts and admissions under s 191 of the Evidence Act 1995 (Cth) dated 19 September 2023 (SAFA); and (b) joint submissions on liability and relief dated 24 November 2023. 8 For the following reasons, I make declarations in the terms sought by the parties, an order that Mercer pay a pecuniary penalty of $11.3 million, and an adverse publicity order requiring Mercer to publish a notice to be displayed on the sustainable investments page of its website for a period of six months that describes the admitted conduct giving rise to the contraventions.