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ASIC fines Morningstar fund for greenwashing
Australian regulator discovers ESG fund temporarily exposed to weapon firm securities
Tom King 7 Dec 2023

The Australian Securities and Investments Commission (ASIC) has issued infringement notices to investment firm Morningstar after finding the company exposed its investors to weapon investments.

Despite Morningstar’s environmental, social and corporate governance (ESG) policy stating that such investments would be excluded from its Morningstar International Shares (Unhedged) Fund, the fund was directly exposed for short periods of time to securities in weapons companies.

The arms producing companies included Honeywell International, General Dynamics, Leidos Holdings, Northrop Grumman and Raytheon Technologies.

Morningstar’s ESG research arm Sustainalytics found that the companies are involved in controversial weapons, specifically the development or production of nuclear weapons or providing core components for them.

The fund was exposed to Honeywell International from November 2 to 18 in 2022. The shareholding was divested after Morningstar said it had become aware of it. On a subsequent occasion, the fund was also exposed to General Dynamics, Leidos Holdings, Northrop Grumman and Raytheon Technologies securities from May 31 to June 13 2023.

As a result of the breaches, Morningstar paid A$29,820 (US$19,600) on November 30 2023 to comply with two infringement notices issued by the ASIC in which the regulator alleged its investor funds were exposed to the controversial weapons investments.

The regulator has adopted an aggressive stance on alleged greenwashing incidents and has already issued infringement notices against Tlou Energy, Vanguard Investments Australia and Diversa Trustees. The ASIC also currently has three greenwashing-related cases against Mercer Super, Vanguard Investments Australia and Active Super before the Federal Court.

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