$14b super fund misled investors by greenwashing, court finds

Active Super misled and deceived investors when it claimed it had restricted or eliminated members’ exposure to gambling, coal and Russian companies, the Federal Court has ruled in a major victory to the corporate regulator that secured its third greenwashing court win.

The small fund, formerly known as Local Government Super, will potentially be on the hook for civil penalties after the Federal Court on Wednesday found Active Super directly and indirectly invested in companies it explicitly stated it would not between February 2021 and June 2023.

ASIC deputy chair Sarah Court welcomed a major victory in the corporate regulator’s crackdown on greenwashing. Credit: Alex Ellinghausen

Active Super had exposures to gambling companies Skycity Entertainment and The Lottery Corporation, Russian-based Gazprom PJSC and Rosneft Oil Company, as well as oil tar sands through ConocoPhillips, and coal miners Whitehaven Coal and New Hope Corporation.

Australian Securities and Investments Commission (ASIC) deputy chair Sarah Court welcomed the judgment, saying it would send a powerful message to corporate Australia and the public.

“What we’re seeing as a result of the work of ASIC and other regulators is that funds are really turning their minds to the representation and statements they’re making,” said Court.

“Our view on this is very simple: if you choose to make statements or representations that are designed to attract consumers and investors to your firm or fund, you have to be able to substantiate them, and they have to be true, and you can’t rely on disclaimers or qualifiers.”

Justice David O’Callaghan dismissed Active Super’s defence its statements promoting its ethical investments were not of a promotional nature, saying the claims were directed towards encouraging existing members to remain and new members to join.

Following the judgment, an Active Super spokeswoman said they were considering the judgment and the fund’s next steps.

“Active Super has co-operated with ASIC’s investigation and welcomes increased scrutiny on ESG [environment, social and governance] disclosure standards as being good for members, the super industry and the community,” she said.

In a minor victory for the fund with about $14 billion in assets, Justice O’Callaghan ruled Active Super was not exposed to tobacco companies through its investments in packaging companies, such as Amcor, that sold specialty cartons to the tobacco industry.

Gazprom was held by Active Super after Russia’s invasion of Ukraine, the corporate regulator claims.Credit: Bloomberg

ASIC had alleged Active Super misled investors because it clearly and unequivocally stated it screened investments to “eliminate” exposure to the tobacco industry.

However, O’Callaghan said an ordinary reasonable consumer would not regard an investment in a packaging company that derived between 1.5 per cent and 11 per cent of its revenue from a tobacco business as a tobacco-related company.

He ruled in favour of ASIC’s allegations against Active Super’s investments in gambling, oil tar sands and coal companies, as well as Russian businesses after President Vladimir Putin invaded Ukraine in February 2022.

Active Super made claims in several product disclosure statements it would “eliminate investments that pose too great a risk to the environment and the community, for example nuclear weapons, tobacco manufacturing, oil tar sands and gambling”.

It also said it would not actively invest in companies that derive 33.3 per cent or more of their revenue from coal mining but remained exposed to three coal stocks, and told investors it had “added Russia to its list of restricted countries it will not invest” but had funds in eight Russian companies.

The latest Federal Court judgment is a major win for the corporate regulator, which has vowed to crack down on greenwashing that it described as “the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical”.

It comes after the corporate regulator’s victories in December when the court ruled Mercer misled members about the sustainability of its investments, and again in March when the court found Vanguard misled investors about its $1 billion ethical fund.

The matter will return to court for a decision on costs and penalties.

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