Greenwashing Leads to $11.3 Million Penalty for Superannuation Giant Mercer

Mercer Superannuation (Australia) Limited (Mercer), a significant player with total assets under management to the value of approximately $65 billion, recently faced heavy scrutiny from the Federal Court following allegations brought by the Australian Securities and Investments Commission (ASIC). 

The case centered on Mercer’s conduct regarding its "Sustainable Plus" investment options, which were marketed as excluding investments in industries such as the production or sale of alcohol, gambling, and the extraction or sale of carbon-intensive fossil fuels. 

Mercer’s conduct is referred to as “greenwashing”. Greenwashing has been identified as a key regulatory and enforcement priority by regulators, including ASIC and the Australian Competition and Consumer Commission. 

Ultimately, Mercer admitted that it contravened the Australian Securities and Investment Commission Act 2001 (ASIC Act) by making representations that were false or misleading and were liable to mislead the public in relation to financial services. On 2 August 2024, Mercer Superannuation was fined $11.3 million in what has been dubbed a “landmark case” for ASIC and the financial services industry. 

Greenwashing 

The Court succinctly summarised that Greenwashing refers to conduct which broadly speaking involves making false or misleading environmental or sustainability claims to make a company or its business appear more environmentally friendly, sustainable, or ethical, particularly to induce consumers to purchase its products or services or to invest in the company. The Court recognised that Greenwashing has a particular manifestation in relation to financial products, including superannuation and life products. Specifically in relation to financial institutions, it is the attempt to entice environmentally conscious investors into purchasing their products, that in reality fall short of meeting the expected Environmental, Social, and Governance (ESG) or green credentials.^[1] 

Mercer’s conduct

Mercer’s admitted that it provided a superannuation trustee service, a financial service within the meaning of the ASIC Act. Therefore, the company was a financial service provider and prohibited from making false or misleading representations or engage in conduct that was liable to mislead the public in relation to financial services. 

In this case, Mercer was marketing its Sustainable Plus Options to potential members who were deeply committed to sustainable.  The conduct in question concerned the representations made by Mercer that several of its Sustainable Plus Options excluded and would continue to exclude investments in companies involved in the the production or sale of alcohol, gambling, and the extraction or sale of carbon-intensive fossil fuels. 

Mercer made the representations by:

• Statements made (and continued to be made) in a video that was updated on Mercer’s website, on Vimeo and YouTube. 
• Statements made on a web page on Mercer’s website, which relevantly, were headed under “sustainable investing” and “sustainable and ethical super”. 

Specifically, the video stated that “they exclude investments in certain sectors deemed not to be sustainable” which involves not being invested in industries such as “alcohol, gambling and carbon intensive fossil fuels like thermal coal.” Likewise, three statements were made on the website which assured investors that their funds would be excluded from the relevant unsustainable industries.

Contrary to the representations, the investigation by ASIC revealed that six out of the seven available ‘Sustainable Plus’ investment options held equity in companies associated with the unsustainable industries. The supposedly sustainable portfolios included investments in companies such as BHP, Woodside Energy, Santos, and Crown Resorts. For example, the “Mercer Sustainable Plus High Growth” option was found to have investments in up to: 

• 15 companies involved in the extraction or sale of carbon-intensive fossil fuels, 
• 15 companies involved in alcohol production; and 
• 19 companies involved in gambling.

Mercer and ASIC jointly sough declarations of contravention together with pecuniary penalties, adverse publicity orders and costs orders. The Court ordered Mercer to pay a substantial pecuniary penalty totaling $11.3 million. Mercer was also required to publish an adverse publicity notice on its website for six months, explicitly acknowledging the false and misleading statements made regarding its investment options.

Key lessons

This case serves as a pivotal reminder of the significant ethical obligations that financial services providers must adhere to, particularly in relation to sustainability claims. The severe consequences faced by Mercer underscore the necessity of upholding the highest standards of honesty and accuracy in ESG-related representations. As Justice Horan aptly stated, “it is vital that consumers in the financial services industry can have confidence in ESG claims made by providers of financial products and services.” Failure to meet these standards not only damages consumer trust but also leads to substantial legal and financial repercussions.

Meanwhile, since the Mercer’s decision, the Federal Court has also ordered Vanguard Investments Australia to pay a record $12.9 million penalty for making misleading claims about environmental, social and governance exclusionary screens.