The logo for Vanguard is displayed on a screen on the floor of the NYSE in New York
Australia's federal court ruled that Vanguard benefited from its false claims.

Australia's federal court has fined U.S. asset manager Vanguard's local unit with a record AU$12.9 million fine for misleading investors on green investment options, securities watchdog Australian Securities & Investments Commission (ASIC) said Wednesday.

Through a wide range of disclosures, Vanguard Investments Australia claimed to exclude those operating in sectors such as fossil fuels from its bond index fund, which the court found was incorrect.

Between August 2018 and February 2021, the securities firm claimed to conduct ESG (environmental, social, and governance) screens for its AU$1.1 billion Ethically Conscious Global Aggregate Bond Index Fund, Financial Standard reported.

The claims were made through different mediums, ranging from the company's 12 product disclosure statements, a press release, a YouTube video, in a Finance News Network presentation, and statements on its website. The company asserted that it evaluated all issuers before allowing them to participate in its "ethically conscious" bonds, the ASIC said.

However, the court found: "Approximately 74% of the securities in the Fund by market value were not researched or screened against applicable ESG (environmental, social, and governance) criteria," according to Reuters.

The court added that Vanguard had benefited from its false claims. Meanwhile, Vanguard Investments Australia denied its conduct had caused financial loss to investors.

The court found the violations in March, and a penalty hearing was held in August this year. ASIC sought a penalty of AU$21.6 million -- AU$18 million for the product disclosure statements, AU$2 million each for the press release and website claims, and AU$1 million each for the YouTube video and Finance News Network presentations.

Vanguard sought a 25% discount for its cooperation in the case and asked for a fine between AU$9 million to AU$11.25 million.

However, the court found Vanguard's annual income on the fund to be less than AU$1 million in FY21 and nearly AU$1.3 million in FY22, which was less than 0.5% of the company's total income in each of those periods.

Hence the fine amount AU$12.9 million fine was "proportionate and strikes an appropriate balance between deterrence and oppressive severity," the court ruled.