The Federal Court of Australia recently fined Active Super A$10.5 million for "greenwashing" following findings that it made false or misleading representations about its green and Environmental, Social and Governance (ESG) credentials.
Australian Securities and Investments Commission v LGSS Pty Ltd (No 3)1
Background
Active Super, formerly known as the Local Government Superannuation Scheme, is a regulated superannuation fund and LGSS Pty Ltd (LGSS) is its trustee.
In August 2023, the Australian Securities and Investments Commission (ASIC) commenced proceedings against LGSS for alleged contraventions of sections 12DB(1)(a) and 12DF(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (Act) for making false or misleading representations, and engaging in conduct liable to mislead the public in relation to investments made by Active Super from 1 February 2021 to 30 June 2023.
Active Super represented on its website, social media platforms, email publications and public statements that it would not make or hold investments in:
- companies that derive more than 10% of their revenue from gambling;
- companies that derive any revenue from tobacco;
- Russia following its invasion of Ukraine in February 2022;
- companies that derive any revenue from oil tar sands projects; and
- companies that derive one-third or more of their revenue from coal mining.
The Court found that contrary to its representations, Active Super held investments, directly and indirectly, in relation to gambling, coal mining, oil tar sands and Russian based entities.
Penalty
In ordering a A$10.5 million pecuniary penalty (which is less than the A$13.5 million proposed by ASIC), the "relevant matters" the Court took into account pursuant to section 12GBB(5) of the Act were:
- the contravener's size. A greater financial incentive will be necessary to persuade a well-resourced contravener to abide by the law as compared to a poorly resourced contravener;
- whether the contravening conduct was deliberate rather than careless or isolated conduct; and
- whether the contravener admitted liability and cooperated with the investigating authority (relevant to whether discounts of the penalty otherwise ordered).
While it was accepted that Active Super's contraventions did not cause financial loss to investors, the Court agreed with ASIC's submissions that the real harm of greenwashing is not the harm to an individual investor, but rather the harm more generally to ESG programs as a whole and investor confidence in them.
By misrepresenting the "ethical" nature of a significant part of its investments, investors could be attracted to Active Super and it enhanced its reputation as a provider of investment funds with ESG characteristics. Investors who chose Active Super for those reasons lost the opportunity to invest in accordance with their investment values.
In addition to ordering a penalty and that LGSS pay ASIC's costs of the proceeding, the Court ordered an adverse publicity notice order to be made pursuant to section 12GLB of the Act. The Court explained that such an order is made, amongst other reasons, to protect the public interest in dispelling incorrect or false impressions created by contravening conduct, alert the consumer to the fact of contravening conduct and prevent the repetition of contravening conduct.
Lessons to be learnt
This is ASIC's third successful greenwashing outcome litigated in court2.
Greenwashing and misleading conduct involving ESG claims has been an enforcement priority of ASIC since (at least) 2023 and continues to be in 20253. ASIC's Deputy Chair, Sarah Court, has said that ASIC will continue to keep greenwashing in its sights and that the penalty sends a "strong message to companies making sustainable investment claims that those claims need to reflect the true position."4
Superannuation trustees ought to actively be assessing new products and auditing older offerings where environmental, social or ethical commitments are made. Boards and marketing teams need to be aware of the financial and reputational risks flowing from making false or inaccurate claims in the ESG space. Where such claims are made, a risk management procedure ought be in place to prevent investments straying from the stated green and ESG credentials.
LGSS was insured under a superannuation liability fund insurance policy with $20 million combined limit (with an excess of A$200,000). LGSS was indemnified for both the penalty and defence costs arising from the investigation and the proceeding - undoubtedly a significant loss to underwriters. For LGSS, the receipt of insurance funds would create a capital gains tax liability which might need to be met from members' funds given the insurance policy did not extend to tax liability. LGSS gave evidence that, for every dollar of the penalty amount awarded, LGSS would need to pay a corresponding tax of 30 cents. Therefore, despite cover, LGSS' members might still be footing the bill for A$3.15 million.
The deterrent effect of a fine and penalty has a key role to play in regulating unlawful conduct. The effectiveness of the tool depends on a number of factors including whether indemnity is available to the regulated entity. Accordingly, regulators, like ASIC, are paying more attention to whether the regulated entity is indemnified by insurers or whether a claim will be made under an insurance policy for fines and penalties as this is relevant consideration to the regulator when considering what submissions to make to the Court. It is also a relevant factor for the Court when considering level of the penalty to be imposed, given that the purpose of fines and penalties is to act as a deterrent not only for the entity under investigation but to regulated entities in general. In that regard the Court or the regulator may seek to preclude the entity from seeking indemnity under an insurance policy. This is therefore another factor for regulated entities to consider when reviewing its governance and insurance program.
Footnotes
1 [2025] FCA 205.
2 It follows decisions in Australian Securities and Investments Commission v Mercer Superannuation (Australia) Limited 2024 [FCA] 850 ($11.3 million penalty ordered) and Australian Securities and Investments Commission v Vanguard Investments Australia Ltd (No 2) [2024] FCA 1086 ($12.0 million penalty ordered).
3 https://asic.gov.au/about-asic/asic-investigations-and-enforcement/asic-enforcement-priorities/
4 https://asic.gov.au/about-asic/news-centre/find-a-media-release/2025-releases/25-042mr-active-super-ordered-to-pay-10-5-million-penalty-in-asic-s-third-greenwashing-court-action/
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
