Landmark $11.3 million penalty for Mercer

Introduction

We have previously reported about how ASIC has commenced three test cases regarding greenwashing – cases involving Mercer Superannuation (Australia) Limited (Mercer Super), Vanguard Investments Australia Ltd (Vanguard) and LGSS Pty Ltd (the trustee of Active Super).

On 28 March 2024, the Federal Court delivered its findings in respect of Vanguard. A link to our report on that decision can be found here.

Now, the Federal Court has delivered its decision in respect of Mercer.

On 2 August 2024, the Federal Court ordered Mercer to pay a hefty $11.3 million penalty, after it admitted to making misleading statements about the sustainable nature and characteristics of some of its superannuation investment options.

The case represents a landmark ruling for ASIC and sets a strong example to the financial services industry of the action which ASIC is willing to take over greenwashing behaviour.

The Mercer Case

The Mercer case was brought by ASIC in February last year. A link to our report when proceedings first commenced can be found here.

ASIC alleged that Mercer, which oversees $65 billion in assets, had made misleading statements on its website about several “Sustainable Plus” investment options offered by the Mercer Super Trust (of which Mercer is the trustee). Those investment options were marketed as being suitable for members committed to sustainability, as they purportedly excluded investments in businesses engaged in the production of alcohol, gambling, and carbon-intensive fossil fuels.

In its judgement last Friday, the Federal Court found that members who took up the Sustainable Plus options, on the basis of the claims made to the contrary, actually had investments in companies involved in industries which the website statements said were excluded. These included:

• 15 companies involved in the production of alcohol (including Budweiser Brewing Company APAC Ltd, Carlsberg AS, Heineken Holding NV and Treasury Wine Estates Ltd);
• 19 companies involved in gambling (including Aristocrat Leisure Limited, Caesar’s Entertainment Inc, Crown Resorts Limited and Tabcorp Holdings Limited); and
• 15 companies involved in the extraction or sale of carbon intensive fossil fuels (including AGL Energy Ltd, BHP Group Ltd, Glencore PLC and Whitehaven Coal Ltd).

When handing down his decision Justice Horan remarked that the contraventions admitted by Mercer were serious. They arose from failures to implement adequate systems to ensure that ESG claims were accurate, and to monitor and enforce the application of any sustainability exclusions associated with such ESG claims.

Justice Horan went on to state that it is vital that consumers in the financial services industry can have confidence in ESG claims made by providers of financial products and services.

“Any misrepresentations in relation to ESG policies or practices associated with financial products or services, whether as an aspect of ‘greenwashing’ practices or otherwise, undermines that confidence to the detriment of consumers and the industry generally.”

Mercer has agreed to pay ASIC’s costs.

Greenhushing fallout?

It is clear that the regulators are ramping up legal action against greenwashing. However, this is causing entities to be increasingly cautious when making environmental claims.

In a study that was conducted by Swiss-based carbon consultancy firm, South Pole, it was found that ~23% of 1,200 participants surveyed have decided not to talk about their net-zero commitments, for fear of opening themselves up to a greenwashing claim. Such a response suggests that tougher scrutiny of green claims is perversely resulting in entities being less willing to take climate action.

It will therefore be interesting to see the fallout from the Mercer case. We suspect the case (and in particular, the sizeable penalty involved) may prompt entities to further remove or scale back their environmental promises for fear that they too will be labelled “greenwashers” (and by default, then labelled as “greenhushers”).

Takeaways

• The Mercer case further demonstrates the importance of making accurate environmental claims and the exposure which entities face for making misleading sustainability claims.
• The Mercer case confirms that ASIC is continuing to place significant attention on greenwashing and that ASIC surveillance is likely to intensify going forward. The decision also confirms the Courts’ willingness to find in favour of greenwashing claims. We expect to see an increase in ESG litigation and regulatory investigations as ASIC continues to focus on greenwashing and other types of ESG fraud.
• Entities must place ESG-related risks high on their agenda and ensure all ESG-related claims and representations are substantiated and made on reasonable grounds.
• Entities will increasingly need to balance the risk of greenwashing against the risk of greenhushing.
• Last year we reported that the ACCC had signalled that it will be investigating a number of businesses for potential greenwashing. Whilst the ACCC has not yet commenced any civil penalty proceedings, the outcome of ASIC’s test cases will likely influence the ACCC’s approach going forward.