On 2 August 2024, the Federal Court found that Mercer Superannuation (Australia) Limited (Mercer) engaged in conduct that was liable to mislead the public and made false or misleading representations in breach of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act).
Mercer was also ordered to:
pay a pecuniary penalty of $11.3 million;
publish an adverse publicity notice on the sustainable investments page of its website; and
pay ASIC’s costs of and incidental the proceeding, and the expenses of the investigation into Mercer under s 91 of the ASIC Act, in the agreed sum of $200,000.
This judgment is significant in that:
the proceedings against Mercer were one of three greenwashing proceedings commenced by ASIC in the Federal Court, although the subsequent proceedings against Vanguard and Active Super have already resulted in declarations of contravention (for further details, see our articles here and here respectively); and
it represents the highest pecuniary penalty that has been ordered by a court in relation to greenwashing proceedings commenced by a regulator in Australia, as opposed to infringement notices being issued by ASIC on an administrative basis.
Key takeaways
This decision highlights the importance of exercising caution in making environmental, social and governance (ESG) claims and implementing adequate systems to ensure that ESG claims are accurate in the current environment of heightened regulatory scrutiny, with greenwashing being a compliance and enforcement priority not only for ASIC but also the ACCC. In particular, businesses should be wary of making absolute and unqualified claims.
To the extent businesses seek to qualify ESG claims, the disclaimers should be prominently displayed, and where there are disclaimers directing consumers to Product Disclosure Statements (PDSs) or other external explanatory materials, these qualifications should be directly referenced or linked in the primary representations. The contents of any disclaimers must also clearly set out the position and dispel any misconceptions that might otherwise arise.
In relation to setting reserves for paying fines and penalties, greenwashing does give to a risk of exposure to substantial pecuniary penalties, although the arithmetic worst-case scenario will typically yield an unrealistically high figure.
Facts and findings
Mercer admitted to the contraventions, including that they were made in trade or commerce in connection with the promotion and supply of financial services.
It agreed to resolve the proceedings with ASIC by way of jointly sought declarations and an agreed penalty, adverse publicity orders and costs orders. The parties filed a statement of agreed facts and admissions and joint submissions on liability and relief, on which Justice Horan relied heavily.
The contraventions related to the nature and characteristics of financial services provided by Mercer through its ‘Sustainable Plus’ investment options including representations as to the standard, quality, value and grade of those options. Specifically, Mercer admitted to representing that the options excluded and would continue to exclude investments in companies involved in or deriving profit from the production or sale of alcohol, gambling and the extraction or sale of carbon intensive fossil fuels, when Mercer’s investment policies permitted investments in such companies, and it did in fact invest in them.
The representations were made on Mercer’s website and in a video published on its website, Vimeo and YouTube from 12 November 2021 to 1 March 2023.
The critical statements were made in absolute terms, without any qualifications as to the materiality of any exposure to those sectors. While there were disclaimers directing investors to the PDSs, which in turn referred to and incorporated investment booklets with specific sustainability exclusions, the statements on Mercer’s website did not contain direct links to the investment booklets. It was agreed that the contents of statements in the PDSs, investment booklets and Mercer’s sustainable investment were not sufficient to qualify the impugned statements or representations.
Size of penalty
As outlined below, Justice Horan concluded the contraventions admitted by Mercer were serious and arose from failures by Mercer to implement adequate systems to ensure that ESG claims in relation to its superannuation products were accurate, and to monitor and enforce the application of any sustainability exclusions associated with such claims. The penalty was mitigated by Mercer’s level of cooperation in the course of the proceedings, and the remedial and corrective action taken to prevent future contraventions.
Maximum per contravention
The maximum penalty per contravention was found to be $22.381 million (in respect of the year ended 31 December 2021) and $20.538 million (in respect of the year ended 31 December 2022), being 10% of Mercer’s annual turnover in the preceding years. Mercer’s annual turnover was calculated by reference to the trustee entity, being substantially lower than the turnover of the superannuation fund as a whole.
Number of contraventions
Mercer admitted that there was a separate contravention each time a consumer viewed one of the impugned statements. As such, his Honour concluded that it was reasonable to assume that there would have been hundreds, if not thousands, of contraventions (based on numbers of times the video was viewed and relevant pages on the website were accessed), such that the precise number of contraventions and theoretical maximum were not fundamental to the determination of an appropriate penalty. Quoting Beach J in Australian Securities and Investments Commission v Commonwealth Bank of Australia [2020] FCA 790, his Honour observed that it may be an “arid exerciseto engage in a mere arithmetical calculation, multiplying the maximum penalty by the number of contraventions to get a theoretical maximum for all offending, even if one could theoretically quantify that latter number”, given that the theoretical maximum would be so large as to be meaningless.
Course of conduct principle
The course of conduct principle was applied in grouping the conduct by distinct time periods. His Honour accepted that it was appropriate to treat the statutory maximum for a single contravention as a guide in considering the appropriate penalty for each course of conduct, although the course of conduct principle does not operate to limit the penalty to the statutory maximum in respect of each course of conduct.
Penalty factors
Justice Horan reiterated the primacy of deterrence, both general and specific, as the principal purpose of a civil penalty.
His Honour made some comments of specific interest in relation to greenwashing:
greenwashing practices have the potential to reduce consumer confidence in environmental, social and corporate governance (ESG) claims, which undermines the efforts of businesses that are pursuing ESG goals accurately and fairly. In addition to harming consumers by depriving them of information relevant to making choices in accordance with environmental, social and ethical values or objectives, false or misleading ESG claims may confer unfair competitive advantages on companies in marketing their financial products and services.
there has been a substantial increase in recent years in demand for investment products focused on ESG considerations, both in Australia and globally. A significant and increasing number of Australian consumers take into account ‘green’ claims and credentials and ESG considerations when making investment decisions, and some are willing to sacrifice returns on their investment in order to pursue an investment strategy that emphasises or prioritises ESG considerations. Such ESG considerations are not limited to carbon intensive fossil fuels, and include exposure to gambling and alcohol companies. Because of this growing demand, there is a strong incentive for AFSL holders to supply investment products that focus on ESG considerations, and to promote the ways in which their investment products emphasise ESG considerations.
These factors went to the importance of imposing pecuniary penalties in an amount that would serve as a general deterrent to engaging in similar conduct, particularly in the superannuation industry, such that they “send a clear signal to AFSL holders and other market participants to ensure transparency and accuracy when making an ESG claims, and to exercise diligence in adhering to such claims”.
The following table provides a high-level overview of the factors applied by Justice Horan in determining a pecuniary penalty of appropriate deterrent value (i.e. the well-known ‘French factors’).
| Factor | Finding | Impact |
| Loss or damage suffered | It was not possible to determine the harm caused by the contraventions.In particular, it was not clear which consumers elected to become members of the ‘Sustainable Plus’ investment options on the basis of the representations, what alternative choices they would have made had they known the true position and the difference in performance of any relevant alternative superannuation fund. | Neutral |
| Benefits obtained | It was not possible to precisely quantify benefits derived by Mercer directly attributable to the contraventions. At a qualitative level, Mercer benefited by attracting customers to the ‘Sustainable Plus’ investment options and by bolstering its reputation and credibility as a superannuation provider. | Aggravating |
| Nature and extent of contraventions | The contraventions were repeated over an extended period for the purposes of marketing financial products to the public. | Aggravating |
| Mercer failed to implement adequate systems system to ensure that the representations were not false or misleading. | Aggravating | |
| The value of the exposure of ‘Sustainable Plus’ investment options to purportedly excluded industries was relatively low (approximately $8 million out of the approximately $174 million of funds invested). | Mitigating | |
| Circumstances of the contraventions | There was awareness at a senior management level of exposure to investments in companies that derived revenue from thermal coal mining, including over and above the threshold set out in the exclusions policy. Senior management was also involved in development, review and making of the relevant statements. The conduct “involved more than carelessness, and may be regarded as at least reckless, if not deliberate”. | Aggravating |
| Size and financial position of the contravenor | Mercer (including its ultimate parent company) is a large organisation with a strong financial position. | Aggravating |
| Mercer had only a modest net profit. | Mitigating | |
| Compliance history | Mercer Financial Advice (Australia) Pty Ltd (a related company of Mercer) admitted to making false or misleading representations within fee disclosure statements provided to retail clients in separate ASIC proceedings. | Aggravating |
| Remedial and corrective action and cooperation | After the proceeding was commenced, Mercer:removed the impugned representations from its website;clarified that ‘Sustainable Plus’ investment options may be exposed to companies in excluded industries; andcooperated with ASIC in admitting to the contraventions, providing documents and other materials in support of the statement of agreed facts and admissions, as well as making joint submissions and agreeing to penalties. | Mitigating |
Loss or damage suffered
It was not possible to determine the harm caused by the contraventions.
In particular, it was not clear which consumers elected to become members of the ‘Sustainable Plus’ investment options on the basis of the representations, what alternative choices they would have made had they known the true position and the difference in performance of any relevant alternative superannuation fund.
Neutral
Benefits obtained
It was not possible to precisely quantify benefits derived by Mercer directly attributable to the contraventions.
At a qualitative level, Mercer benefited by attracting customers to the ‘Sustainable Plus’ investment options and by bolstering its reputation and credibility as a superannuation provider.
Aggravating
Nature and extent of contraventions
The contraventions were repeated over an extended period for the purposes of marketing financial products to the public.
Aggravating
Mercer failed to implement adequate systems system to ensure that the representations were not false or misleading.
Aggravating
The value of the exposure of ‘Sustainable Plus’ investment options to purportedly excluded industries was relatively low (approximately $8 million out of the approximately $174 million of funds invested).
Mitigating
Circumstances of the contraventions
There was awareness at a senior management level of exposure to investments in companies that derived revenue from thermal coal mining, including over and above the threshold set out in the exclusions policy.
Senior management was also involved in development, review and making of the relevant statements. The conduct “involved more than carelessness, and may be regarded as at least reckless, if not deliberate”.
Size and financial position of the contravenor
Mercer (including its ultimate parent company) is a large organisation with a strong financial position.
Aggravating
Mercer had only a modest net profit.
Mitigating
Compliance history
Mercer Financial Advice (Australia) Pty Ltd (a related company of Mercer) admitted to making false or misleading representations within fee disclosure statements provided to retail clients in separate ASIC proceedings.
Aggravating
Remedial and corrective action and cooperation
After the proceeding was commenced, Mercer:
removed the impugned representations from its website;
clarified that ‘Sustainable Plus’ investment options may be exposed to companies in excluded industries; and
cooperated with ASIC in admitting to the contraventions, providing documents and other materials in support of the statement of agreed facts and admissions, as well as making joint submissions and agreeing to penalties.
Mitigating
Agreed penalties
Justice Horan considered that the proposed penalties of $11.3 million were within the acceptable range and were appropriate - while being well below the statutory maximum, they were nevertheless substantial and not immaterial relative to Mercer’s net assets and profits.