Global funds giant Vanguard has been slapped with a $12.9 million fine by the Federal Court after it was found guilty of greenwashing earlier this year.

Australia’s corporate watchdog, the Australian Securities and Investments Commission, sued Vanguard saying its $1 billion “Ethically Conscious Global Aggregate Bond Index Fund” misled investors about the environmental, social and governance screening criteria applied to it.

ASIC alleged, and Vanguard agreed, investments held by the fund were based on an index called the “Bloomberg Barclays MSCI Global Aggregate SRI Exclusions Float Adjusted Index”.

Vanguard had claimed the Index excluded only companies with significant business activities in a range of industries, including those involving fossil fuels, but has admitted that certain securities in the Index and the fund were from issuers that were not researched or screened against applicable ESG criteria.

But Justice O’Bryan said the fund “included issuers that violated applicable ESG criteria, including ESG criteria regarding fossil fuels and alcohol”.

“Vanguard’s contraventions should be regarded as serious,” Justice O’Bryan said.

ASIC deputy chair Sarah Court said the penalty imposed is the highest yet for greenwashing conduct.

“Greenwashing is a serious threat to the integrity of the Australian financial system, and remains an enforcement priority for ASIC,” Ms Court noted.

“It is essential that companies do not misrepresent that their products or investment strategies are environmentally friendly, sustainable, or ethical.

“The size of the penalty should send a strong deterrent message to others in the market to carefully review any sustainable investment claims.”

Vanguard said in a statement that it “takes its regulatory obligations and responsibilities to its clients seriously”.

“Vanguard has cooperated with ASIC throughout this matter since informing the regulator of the issue and its approach to rectification in 2021,” the statement said.

“There were no findings of financial loss to investors.

“Vanguard apologises to its clients for these errors, which were unintentional. Vanguard acknowledges the importance of accurate product and marketing information in helping consumers to make informed investment decisions.

“Following a self-initiated independent review of relevant internal processes, Vanguard has strengthened its procedures, governance, technology and training to reflect the high s