A column by Felicity Gerry KC.
In March 2025, the Federal Court of Australia imposed a $10.5 million penalty on LGSS Pty Ltd, the trustee of Active Super, for misleading environmental, social, and governance (ESG) claims — a landmark decision in the realm of greenwashing enforcement.
Active Super is a superannuation fund with approximately $13.5 billion in superannuation assets. As of 1 July 2023, Active Super has 89,000 members.
The Active Super Case: A Cautionary Tale
Active Super marketed itself as an ethical superannuation fund, claiming to exclude investments in sectors like gambling, coal mining, Russian entities, and oil tar sands investments using terms such as “out” and “eliminate”. However, the federal Court found that the fund invested in securities it claimed were restricted and that Active Super’s representations were false or misleading and contrary to the unequivocal language in the fund’s marketing materials .
The Rise of ESG Enforcement
The Active Super case is part of a broader trend of increased regulatory scrutiny on ESG claims. The Australian Securities and Investments Commission (ASIC) brought the regulatory action and, after the penalty was imposed, ASIC Deputy Chair Sarah Court said, ‘This is a significant penalty that sends a strong message to companies making sustainable investment claims that those claims need to reflect the true position.
The contravening representations were made in a range of locations, including the Active Super fund’s website, an email sent to over 40,000 members, an impact Report, a Product Disclosure Statement (PDS), Fact Sheets, Policy documents, and an interview with the CEO of Active Super in Investment Magazine.
This case follows the Federal Court of Australia finding in 2024 that Mercer Superannuation, another superannuation trustee, contravened the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) by making false or misleading statements about its financial services and engaging in conduct liable to mislead the public in relation to ESG issues.
The penalty of $11,300,000 was only slightly less than that of $12.9 million imposed on Vanguard Investments the same year again for misleading claims about ESG exclusionary screening.
The investment landscape can be a complex mesh of compliance issues, as highlighted by cost to ETC of $82 million USD for divestment of the Golden City scheme in Myanmar after our memo setting out international law and guidance for due diligence obligations in investment schemes
Corporate Due Diligence in Investment: Lessons from our Justice for Myanmar Memo
- Document ESG alignment: Ensure that public ESG commitments match operational decisions.
- Don’t mislead potential investors. In Australia ASIC’s Information Sheet 271 How to avoid greenwashing when offering or promoting sustainability-related products (INFO 271).
- Know your business partners and supply chains: Conduct enhanced due diligence on shareholders, subsidiaries, joint venture partners, and supply chain entities.
- Engage in risk-based assessment: Identify geographic, sectoral, and political risk factors, especially where investments occur in conflict zones or under authoritarian regimes.
- Recognise the potential overlap between ESG and human rights abuses in due diligence and compliance processes and apply suitable “red flag” filters.
- Avoid wilful blindness: As our memo noted, you can’t outsource responsibility for risk.
- Disclose transparently: Provide clear, complete, and honest disclosures in financial and ESG reporting.
- Build internal accountability: Appoint ESG compliance officers and train staff at all levels on the implications of unethical investments and exposure to international legal norms.
- Plan for exit strategies: Develop a responsible disengagement plan in case an investment becomes ethically or legally untenable.
Implications for Legal Practitioners
For legal practitioners, the Active Super decision underscores the importance of understanding the evolving landscape of ESG enforcement. Clients, particularly those in the financial services sector, require guidance on:
- Ensuring marketing materials accurately reflect investment practices.
- Implementing robust compliance frameworks to monitor ESG commitments.
- Responding effectively to regulatory investigations and enforcement actions.
The case also highlights the need for legal professionals to be conversant with both domestic and international ESG regulations, as cross-border investments and global supply chains become increasingly common. This includes conducting thorough reviews of investment portfolios to identify potential ESG risks, advising on the creation of clear, enforceable ESG policies and exclusion criteria, providing training to ensure that marketing and investment teams understand the legal implications of ESG representations, as well as assisting clients in engaging proactively with regulators to address concerns before they escalate to enforcement action.
Looking Ahead: The Future of ESG Enforcement
The Active Super case serves as another precedent for future ESG enforcement actions. As regulatory bodies continue to prioritize ESG compliance, companies must be vigilant in ensuring that their practices align with their public statements.
For legal practitioners, staying abreast of developments in ESG regulation and enforcement is essential. This includes monitoring changes in legislation, understanding emerging risks, and advising clients on best practices to mitigate potential liabilities.
