Australia’s corporate regulator has launched civil penalty proceedings against Fiducian Investment Management Services Limited, alleging the fund manager breached its duties as a responsible entity and misled investors over the operation of its environmental, social and governance fund.
In a case filed in the Supreme Court of NSW, the Australian Securities and Investments Commission alleges the responsible entity of the Diversified Social Aspirations Fund failed to act with due care and diligence and made misleading statements in the fund’s product disclosure statement about how the fund would be managed.
ASIC says the fund, offered between 2015 and 2024, selected holdings via external managers and underlying funds with their own ESG methodologies and tolerance thresholds that did not align with the approach represented in the PDS. The PDS stated: ‘The share portfolios comprise investments in companies that aim to be positive for society and for the environment and aim to avoid investments in harmful activities’.
The regulator further alleges the PDS included false and misleading statements that Fiducian would monitor the portfolio exposure and investment styles of the underlying funds in circumstances where it did not have the information required to do so.
ASIC claims Fiducian failed to review underlying investments for consistency with the PDS, did not identify ESG-related risks or include appropriate controls in its compliance documents, failed to follow its own risk management framework for reviewing disclosure documents, and did not engage or employ an ESG expert to review or monitor the fund.
The watchdog also alleges Fiducian failed to comply with its compliance plan by not recording and lodging investor complaints as required and by failing to address investor concerns that the fund held investments contrary to its stated exclusions, citing holdings such as BHP Billiton, Rio Tinto, Woodside Petroleum, Newcrest Mining and Orica.
ASIC Deputy Chair Sarah Court said responsible entities must have robust processes to ensure investment strategies and statements about them match what is represented to investors, especially for ESG-focused products. ‘We believe FIMSL’s governance of the Fund provides a clear example of how not to run an ESG fund.
‘We will allege FIMSL took a perfunctory approach to its oversight of the Fund, attracting investors with claims it made no effort to validate, and in failing to independently monitor investments in the Underlying Funds to ensure they were consistent with the representations in the PDS.
‘Even when alerted that the Fund held investments that were contrary to its PDS, FIMSL continued to re-issue the PDS without making any changes for over nine years.
‘We consider it to be unacceptable for entities to capitalise on investors’ interest in ESG investments without ensuring sustainability-related representations are well-founded, transparent and consistent. The bar for governance standards that underpin ESG representations for investment products is high and ASIC will ensure that entities which we believe may have failed to meet those standards, are held to account,’ Ms Court said.
ASIC is seeking declarations, pecuniary penalties and adverse publicity orders.
Fiducian Investment Management Services is a wholly owned subsidiary of listed Fiducian Group Limited and acted as trustee and responsible entity of the fund, which closed in May 2024. The fund was run under a “manage-the-manager” model, investing through other managers and funds, and promoted an approach that avoided companies engaged in activities such as unnecessary pollution, the production of harmful goods and services, armaments, exploitative labour practices, discrimination and human rights abuses.
The case is ASIC’s fourth greenwashing civil penalty action and the first targeting a responsible entity for alleged governance and RE duty failures. Previous greenwashing cases brought by the regulator have resulted in penalties of $11.3 million against Mercer superannuation, $12.9 million against Vanguard Investments Australia and $10.5 million against Active Super.
Fiducian Group has been contacted for comment.
