The Federal Court has found LGSS Pty Limited, as trustee of the superannuation fund Active Super (Active Super), contravened the law in connection with various misleading representations concerning its environmental, social and governance (ESG) credentials.

Active Super claimed in its marketing that it eliminated investments that posed too great a risk to the environment and the community, including gambling, coal mining and oil tar sands. Following the invasion of Ukraine, Active Super also made representations that Russian investments were “out”.

However, the Federal Court found that from 1 February 2021 to 30 June 2023, Active Super invested in various securities that it had claimed were eliminated or restricted by ESG investment screens. These securities were held by Active Super both directly and indirectly (via managed funds or ETFs).

His Honour, Justice O’Callaghan, rejected Active Super’s claims that an ordinary or reasonable consumer would draw a distinction between holding shares in a company and indirect exposures through a pooled fund and stated that:

‘I am unable to accept LGSS’s contention that an ordinary and reasonable member of the relevant class would draw a distinction between holding shares in a company and indirect exposures through pooled funds. It seems to me that such a consumer would not draw that distinction, including in particular because there is nothing in the Impact Reports or on the LGSS website that suggests that the claims that there was, for example, “No way” Active Super would invest members funds in gambling, tobacco and so on, was to be read subject to a proviso that there was a way in which it would do exactly that, by investing indirectly, not directly. In my view, that distinction is one which no ordinary reasonable consumer would draw.’

The Court also found that Active Super did not engage in misleading representations in relation to its holdings in companies involved in the production of packaging used for tobacco products, and that specific representations in its Sustainable and Responsible Investment Policy were not misleading with respect to Russian or oil tar sands investments (although the remaining representations alleged by ASIC were upheld).

On 5 June 2024, Justice O’Callaghan found that Active Super published representations which were misleading and deceptive in relation to exclusions applied to gambling, coal mining, Russian entities and oil tar sands investments on its website, reports and disclosure documents.

His Honour found that the use of the terms such as such as “not invest”, “No Way” and “eliminate” were unequivocal and not the subject of any potential qualifications by LGSS’s “Sustainable and Responsible Investment Policy”. In his judgment, Justice O’Callaghan stated:

‘If such a consumer was told, as they were told, that there was “No way” that LGSS would invest in tobacco or gambling, he or she would not search around for some investment policy that might qualify such statements. Absent some indicator on the face it, such as a footnote or asterisk with some accompanying statement that the apparently unqualified language was, in fact, something that was subject to qualifications or limitations, they would have no reason to.’

At the time of publishing these representations, Active Super held direct and indirect investments in companies such as:

SkyCity Entertainment Group Ltd and Pointsbet Holdings Ltd (Gambling)
Gazprom PJSC and Sberbank of Russia (Russian entities)
ConocoPhillips and Shell Plc (Oil tar sands)
Whitehaven Coal Limited and Coronado Global Resources (Coal mining)
ASIC Deputy Chair Sarah Court said, ‘This is a significant outcome which shows our commitment to taking on misleading marketing and greenwashing claims made by companies in the financial services industry. ASIC took this case because it sends a strong message to companies making sustainable investment claims that they need to reflect their true position.’

The matter has been listed for a further hearing at which the Court will consider the appropriate form of declaratory relief. The Court will consider the pecuniary penalty to impose for the conduct at a later date.