Fiducian Ordered to Pay $5.2 Million After ESG Claims Outran Fund Oversight

Key Takeaways

• Fiducian Hit With $5.2 Million Penalty: The Supreme Court of New South Wales ordered Fiducian Investment Management Services to pay approximately $5.2 million (AUD $7.3 million) over its operation of the Diversified Social Aspirations Fund.
• ESG Claims Lacked Reasonable Grounds: The court found FIMS did not have reasonable grounds for statements about the fund’s ethical and socially responsible investment objectives and its monitoring of the portfolio.
• Governance and Oversight Were Central: FIMS failed to adequately monitor underlying investments, review underlying fund strategies, change investments that conflicted with its ESG statements or amend the fund’s objectives to reflect its actual holdings.
• Investor Concerns Dated Back to 2019: Concerns about the fund’s holdings had been raised from at least 2019, but FIMS failed to appropriately amend or qualify its ESG statements.
• ASIC Breaks New Ground on Greenwashing: This is ASIC’s fourth greenwashing civil penalty outcome, but its first against a managed fund operator for governance, compliance and oversight failures involving ESG claims.

Deep Dive

An Australian investment manager has been ordered to pay approximately $5.2 million (AUD $7.3 million) after a court found that it failed to properly oversee an ESG fund while making claims about the fund’s ethical and socially responsible investment approach that it did not have reasonable grounds to make.

The Supreme Court of New South Wales found Tuesday that Fiducian Investment Management Services Limited breached its duty to act with care and diligence as the responsible entity of the Diversified Social Aspirations Fund. The court also found that statements about the fund’s investment objectives, and FIMS’s monitoring of its portfolio, were liable to mislead the public.

The findings followed years in which the fund was marketed as an option for investors seeking an “ethical” or “socially responsible” investment. Its disclosure documents said it would seek companies that were positive for society and the environment and avoid certain harmful activities. But between October 2019 and May 2024, the underlying funds through which it invested held companies that, among other things, derived revenue from fossil fuels.

The case exposed failures that went beyond the wording of the disclosures. FIMS did not adequately monitor the underlying investments against its ESG statements, review the investment strategies of the underlying funds, change investments that did not align with those statements or amend the fund’s stated objectives to reflect what it actually held. Investor concerns had been raised from at least 2019.

The penalty adds a new dimension to a greenwashing enforcement campaign that has already produced cases against some of the country’s largest investment and superannuation businesses. It is ASIC’s fourth greenwashing civil penalty outcome, but its first against the operator of a managed fund for failures involving the governance, compliance and oversight of ESG claims.

What the Fund Said, and What FIMS Did

The Diversified Social Aspirations Fund opened in 2015 after FIMS identified demand for an “ethical” or “socially responsible” investment option. Its Product Disclosure Statement was issued six times between October 2019 and May 2024. It said the fund would invest in companies “that aim to be positive for society and for the environment and aim to avoid investments in harmful activities.” It identified industries and activities the fund would avoid. It also told investors that FIMS would routinely monitor the fund’s portfolio exposure, operations and performance.

The court found FIMS did not have reasonable grounds to make those ESG statements. The reason becomes clearer in the findings on oversight. FIMS failed to adequately monitor the underlying investments against the ESG statements. It failed to review the investment strategies of the underlying funds. When the investments and the stated objectives did not align, FIMS neither changed the underlying investments nor amended the fund’s objectives to reflect what it actually owned.

There had been warning signs. Investors had raised concerns about the fund’s holdings from at least 2019, according to ASIC. FIMS nevertheless failed to appropriately amend or qualify its ESG statements.

For investors choosing among funds precisely because of those statements, the consequences were not theoretical. The court accepted that retail investors were denied the opportunity to make an informed choice between the Diversified Social Aspirations Fund and other ESG funds on the market. It also accepted that FIMS’s conduct eroded confidence in the financial system and consumers’ trust in statements made by responsible entities.

“More Australians are seeking investments that align with their ethical, environmental and social values,” ASIC Chair Sarah Court said. “Those investors are entitled to accurate information about where their money is invested.”

Court also pointed directly to the machinery behind the disclosure. ESG claims, she said, must be supported by robust systems, oversight and governance, and sustainability claims cannot be made when they are not supported in practice.

FIMS is a wholly owned subsidiary of listed Fiducian Group Limited and served as trustee and responsible entity of the fund. The Diversified Social Aspirations Fund closed in 2024. ASIC commenced proceedings against FIMS the following year. FIMS admitted that it failed to discharge its duties as a responsible entity and contravened provisions prohibiting false or misleading representations.

Greenwashing Moves Beyond the Label

ASIC is no stranger to greenwashing cases. It previously obtained penalties of approximately $8.0 million (AUD $11.3 million) against Mercer Superannuation, $9.1 million (AUD $12.9 million) against Vanguard Investments Australia and $7.4 million (AUD $10.5 million) against Active Super. The Fiducian case pushes the enforcement record further into the workings of the fund itself.

A responsible entity that promises exclusions or other ethical investment criteria has to know whether the portfolio continues to satisfy them. That can become harder when a fund invests through other funds, where the companies ultimately held may sit another layer down. The structure does not make the representations disappear. It makes the oversight more important.

The court’s findings show what happens when that oversight becomes passive. FIMS had several possible points at which it could have dealt with the mismatch. It could have monitored the underlying holdings adequately. It could have reviewed the investment strategies of the underlying funds. It could have changed those investments. Or it could have changed what it was telling investors. It did not do those things.

That gives compliance teams and responsible entities a more useful lesson than the familiar warning to be careful with ESG language. The language was only the visible part of the problem. ASIC’s case reached into whether the organization had the governance and monitoring necessary to substantiate what appeared in its disclosure documents.

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