Greenwashing Penalty in Superannuation Fund

The Federal Court of Australia found that LGSS Pty Ltd, the trustee of Active Super, engaged in misleading or deceptive conduct by making unqualified public representations about excluded investments that were inconsistent with the fund’s actual portfolio holdings.

The proceedings concerned whether categorical environmental, social and governance (ESG) statements made to members and the public accurately reflected the investments held by the fund during the relevant period. The Court’s findings focused on disclosure accuracy rather than the merits of ESG investing.

Background

Active Super is a regulated superannuation fund marketed as applying ESG screening to its investment decisions. Between February 2021 and June 2023, the fund made public statements through its website, marketing materials and impact reporting that it did not invest in, or had eliminated exposure to, certain industries and entities.

Those statements included representations that the fund excluded:

• Gambling

• Coal mining

• Oil tar sands

• Russian-linked investments

  
  

The representations were expressed in definitive terms, without qualifications relating to indirect exposure or investments held through pooled vehicles.

ASIC Investigation and Proceedings

ASIC commenced civil penalty proceedings against LGSS Pty Ltd in 2023 under sections 12DB and 12DF of the Australian Securities and Investments Commission Act 2001 (Cth).

ASIC alleged that, during the period the representations were made, Active Super held direct and indirect investments in companies operating in the sectors it claimed to exclude. ASIC characterised the conduct as misleading or deceptive, regardless of the trustee’s internal policies or intent.

The proceedings did not allege dishonesty. The case concerned whether the representations conveyed factual claims to ordinary members and whether those claims were accurate.

Portfolio Holdings Identified

Evidence before the Court established that, during the relevant period, Active Super held investments, either directly or indirectly through managed funds or exchange-traded funds, in companies including:

• SkyCity Entertainment Group Ltd and PointsBet Holdings Ltd (gambling)

• Gazprom PJSC and Sberbank of Russia (Russian entities)

• Shell Plc and ConocoPhillips (oil and fossil fuel-linked companies)

• Whitehaven Coal Limited (coal mining)

  
  

The fund also made public statements indicating that Russian investments had been excluded following the invasion of Ukraine, despite maintaining exposure through underlying investment vehicles.

Issues for Determination

The Court was required to determine:

• Whether the ESG statements conveyed definitive claims of fact to ordinary members.

• Whether indirect exposures were relevant when assessing the truth of the representations.

• Whether internal ESG policies or operational limitations could qualify the statements.

• Whether the representations contravened statutory prohibitions on misleading or deceptive conduct.

Findings

The Federal Court found that the representations made by Active Super were misleading.

Justice O’Callaghan held that terms such as “eliminate”, “no exposure” and “does not invest” would be understood by a reasonable member as statements of fact, not aspirational objectives or policy descriptions.

The Court rejected submissions that members would distinguish between direct and indirect holdings in the absence of express qualifications. It held that ordinary members would not reasonably be expected to draw such distinctions.

Arguments that ESG screening practices were complex, or that internal policies limited full exclusion, did not mitigate the misleading nature of the public statements.

Legal Framework

The decision applied the following legal principles:

• ASIC Act 2001 (Cth), ss 12DB and 12DF: prohibiting false or misleading representations in connection with financial products and services.

• Trustee disclosure obligations: requiring accuracy in communications to members.

• Objective assessment: requiring representations to be assessed by their natural and ordinary meaning to reasonable members.

  
  

The Court emphasised that internal policy language cannot qualify external representations unless that qualification is clearly communicated.

Penalty and Orders

On 18 March 2025, the Federal Court imposed a civil penalty of A$10.5 million on LGSS Pty Ltd.

The Court also ordered:

• publication of an adverse publicity notice

• alignment of ESG disclosures with actual investment practices

• implementation of enhanced compliance and monitoring arrangements

The penalty reflected the duration of the conduct, the breadth of the communications, and the potential impact on member decision-making.

Outcome

LGSS Pty Ltd was held liable for misleading representations made on behalf of Active Super. The orders were directed at improving disclosure integrity and future compliance, not at assessing the effectiveness or legitimacy of ESG investment strategies.

Professional Significance

This decision confirms that ESG representations are treated as enforceable statements of fact under Australian law.

Key implications include:

• Unqualified ESG exclusion claims carry legal risk if inconsistent with holdings.

• Indirect exposures are relevant unless expressly disclosed otherwise.

• Internal intent or policy does not offset misleading public representations.

• ESG marketing is subject to the same standards as other financial product disclosures.

  
  

The case reinforces ASIC’s regulatory focus on disclosure accuracy in ESG-related communications and establishes a clear benchmark for trustee and fund representations to members.