ESG representations and compliance: key tips for wholesale fund operators

Since 2023 there has been a steady increase in greenwashing litigation and civil penalties being pursued by the Australian Securities and Investments Commission (ASIC). In a string of successful prosecutions, penalties in the range of $10.5 million to $12.9 million were awarded against Vanguard and certain superannuation trustees in 2024 and 2025. More recently, ASIC commenced proceedings in October 2025 against the responsible entity of a retail fund for the first time.

While wholesale fund managers and trustees have a narrower set of obligations, ASIC may investigate any Environmental, Social and Governance (ESG) representations made to wholesale investors under the general licensee obligations in s912A(1) of the Corporations Act and the misleading and deceptive conduct prohibitions in the ASIC Act. ASIC is actively looking for ways to extend its supervisory scope to the wholesale investor space, and we think that investigating compliance with ESG representations made in Information Memorandums and other documents prepared by managers and trustees could result in some quick wins for the regulator. These types of representations may previously have been viewed as low risk by wholesale funds but should be reconsidered in light of recent enforcement activity.

This insight identifies key takeaways from recent cases and next steps that wholesale fund managers and trustees can take now to successfully manage any regulatory inquiries and reduce the risk of any adverse regulatory outcome.

Recent enforcement action

ASIC considers greenwashing to be ‘the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical.’

The regulator has stated that it is unlikely to be concerned by ESG representations which have a sound basis and are supported by business plans and investments that substantiate those statements. ASIC is more concerned by statements made in a marketing and/or promotional context, with little substance to support them. Additionally, when ASIC selects matters for enforcement action, it will consider whether it will have a deterrent effect beyond the specific entity and send a wider message about compliance to the market. This is demonstrated by the recent cases below.

• Mercer: in August 2024, the Federal Court ordered Mercer Superannuation (Australia) Limited (Mercer) to pay an $11.3 million penalty for contraventions of ss 12DF(1) and 12DB(1)(a) of the ASIC Act, in ASIC’s first successful greenwashing case. Mercer admitted that it made misleading statements on its website, YouTube and Vimeo about its ‘Sustainable Plus’ investment options, saying that they excluded investments in carbon intensive fossil fuels and companies involved in gambling and alcohol production. The Court found that, in fact, the investment options did not exclude these industries.
• Vanguard: in September 2024, the Federal Court ordered Vanguard Investments Australia (Vanguard) to pay a $12.9 million penalty for contraventions of ss12DF(1) and 12DB(1)(a) and (e) of the ASIC Act. ASIC alleged, and Vanguard admitted, that it misled investors by representing that the Vanguard Ethically Conscious Global Aggregate Bond Index Fund would be screened to exclude bond issuers with significant activities in certain industries, when in fact approximately 74% of securities in the Fund were not screened against the applicable ESG criteria. These representations were made across 12 product disclosure statements, a media release, Vanguard’s website and its YouTube account.
• Active Super: in March 2025, the Federal Court ordered Active Super to pay a $10.5 million penalty for contraventions of ss 12DB(1)(a) and 12GBB of the ASIC Act. The Federal Court found that Active Super invested in various securities that it had claimed were excluded by its ESG screening processes. Active Super made representations on its website, an email, a product disclosure statement, fact sheets and various reports to the effect that it would not make ‘high ESG risk’ investments such as tobacco, nuclear weapons or gambling. To the contrary, the Court found that Active Super held direct and indirect investments in gambling, oil tar and coal mining companies, deeming its EGS representations misleading.

ASIC proceedings against a retail fund

In October last year, ASIC commenced proceedings in the Supreme Court of NSW against Fiducian Investment Management Services Limited (FIMS) as the responsible entity of a retail fund, the Diversified Social Aspirations Fund (the Master Fund). The matter has been listed for a penalty hearing on 6 August 2026. According to a Fiducian ASX announcement on 30 March 2026, it has entered into a heads of agreement with ASIC which involves Fiducian paying a $7.3 million penalty for breaches of s 12DF(1) of the ASIC Act and s 610FC(1)(b) of the Corporations Act (Responsible Entity’s (RE) duty to act with care and diligence). As of June 2026, a statement of agreed facts and admissions has not been finalised.

The substance of the allegations is set out below.

• False and misleading statements – s 12DF of the ASIC Act: ASIC alleges that FIMS made false and misleading statements in its product disclosure statement (PDS), including that:
  • “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”
  • “Managers are not expected to sacrifice ethics for returns, but they shall strive to achieve competitive returns. Some of the companies to be avoided are…” The statement goes on to list a number of activities including unnecessary pollution of air, land and water, encouragement of military activity, exploitation of workers and discrimination.

  Importantly, ASIC has found issue with the above statements despite them being significantly more qualified than the representations made in the three successful greenwashing cases outlined above.

• Breach of duty of care – s 610FC(1)(b) of the Corporations Act: ASIC alleges that FIMS failed to discharge its duties with the degree of care and diligence expected from the RE of FIMS. ASIC’s statement of claim sets out actions that a reasonable RE would have taken, including:
  • reviewing the securities or shareholdings of the Master Fund’s underlying funds to check their alignment with the stated ESG objectives
  • reviewing the PDS and investment strategies or underlying funds against its external communications
  • employing an ESG expert to review, monitor and/or amend the structure and PDS of the Master Fund to ensure that no misleading statements were made
  • complying with internal policies and procedures in relation to identifying and addressing risks and responding to incident reports.

Key obligations for wholesale fund managers and trustees

General licensee obligations in s912A(1) and misleading or deceptive conduct

While the duties of REs of retail funds do not apply to wholesale fund managers, there are clear similarities between the greenwashing claims above and the obligations that apply to wholesale fund managers as AFS licensees under the general licensee obligations in s 912A(1) of the Corporations Act. Under the ASIC Act, a wholesale fund manager is also subject to the prohibitions against misleading and deceptive conduct in ss 12DF and 12DB, which were applied in all four cases above.

Section 912A(1) obligations

Section 912A(1)(a) requires a financial services licensee to ‘do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly’. The licensee must ensure that the financial services are provided to a reasonable level of competence and by reference to sound ethical values and judgments relating to customers. The greenwashing conduct in the cases above may fall foul of s 912A(1)(a) obligations, for example:

• misrepresentations across multiple platforms and documents that are unsubstantiated (honesty)
• a lack of adherence to internal policies in relation to review of investments (efficiency)
• inducing customers to act in a certain way by making ESG representations (fairness).

A key feature of s 912A(1) obligations is that they relate to the overarching systems of the financial services licensee, rather than targeting individual instances of inefficiency, dishonesty or unfairness. If a licensee fails to adhere to policies or makes unsubstantiated representations, this may be taken by ASIC as indicating broader compliance issues. Importantly, breach of s912A of the Corporations Act could result in civil penalties.

Misleading conduct and false or misleading representations

Wholesale fund managers and trustees are subject to the obligations in ss 12DF and 12DB of the ASIC Act as they provide a financial service. As such, the misleading conduct provisions applied in the recent greenwashing cases apply to them in the same way as they apply to retail funds, superannuation funds or other financial services. These ASIC Act prohibitions are also civil penalty provisions.

What this means for wholesale fund managers and trustees

Greenwashing is an important focus for ASIC, and the recent case against FIMS, a responsible entity, indicates that the regulator is thinking more broadly about the kinds of businesses that are being investigated for making ESG/greenwashing claims.

For wholesale funds, this means that it is important to be conscious of the regulatory framework around ESG representations. For wholesale fund managers and trustees to comply with their legal obligations in relation to ESG statements, any representations made must:

• have a reasonable basis
• be underpinned by systems that ensure that the fund is complying with its ESG representations in practice. This will involve having appropriate policies and procedures in place, as well as resources devoted to personnel that actively monitor compliance with ESG representations.