Investment giant Vanguard could be forced to pay fines approaching its entire annual profit after admitting to misleading investors in a landmark greenwashing case.
The Federal Court ruled in March Vanguard Investments Australia broke consumer laws by making misleading claims about ethical exclusions applied to one of its index funds.
Vanguard self-reported the breach and was pursued by the Australian Securities and Investments Commission in the first greenwashing action brought by the watchdog to result in a finding of liability.
ASIC is seeking a penalty of $21.6 million, after a discount is applied for Vanguard's co-operation in the matter, while the company is arguing for a substantially lesser amount.
During a court hearing on Thursday, Vanguard barrister Philip Solomon KC told the court either figure could comprise most, if not all, of the company's net annual profit.
"We're not suggesting that these are not serious contraventions requiring a substantial penalty," he said.
Vanguard's yearly profit's ranged from about $10 million in 2018 to as much as $50 million in 2020, the court was told.
ASIC barrister Meg O'Sullivan KC said employees at Vanguard had been aware of potential issues with how companies were being screened for ethical exclusion but had failed to take action.
"Vanguard is obviously a very large organisation; its parent company is obviously very large as well," Ms O'Sullivan said.
"(The court) has to consider the level of penalty that will have the necessary sting."
Justice Michael O'Bryan earlier found Vanguard contravened the ASIC Act numerous times through representations about environmental, social and governance screens applied to its Vanguard Ethically Conscious Global Aggregate Bond Index Fund.
The index claimed to exclude companies with significant business activities involving fossil fuels, alcohol, tobacco, gambling, military weapons and civilian firearms, nuclear power and adult entertainment.
But the court was told limitations on the screening of companies led to some being included in the index, such as Abu Dhabi Crude Oil Pipeline, which may not have met the standards consumers could reasonably expect.
The breaches were made in 12 product disclosure statements, a media release, statements published on the company's website, a Finance News Network interview on YouTube and a presentation was posted online.
Mr Solomon urged the court not to find Vanguard had been "reckless" in its actions, as was proposed by ASIC
"It's a term that's moving in the direction of intentional or deliberate - and that's not what this was," he said.
Mr Solomon noted there was no "observable change" in investor behaviour once the breaches became public.
Justice O'Bryan on Thursday said the contraventions had the potential to affect the choice of consumers for whom making ethically conscious investments was important.
"That is a matter of significance, it's not something you can quantify, not something you can value financially," he said.
Mr Solomon said it was a matter of "sincere regret" to the investment firm that it misled consumers and he apologised unreservedly on behalf of the company.
ASIC has pursued similar greenwashing proceedings against superannuation funds Mercer and Active Super.
Both of those companies have been found by the Federal Court to have misled consumers and are due to have penalties applied.
Vanguard declined to comment as the matter is still before the courts.
It is due to return to court next week for further submissions by the parties.
