In early 2021, Vanguard Investments Australia Ltd (Vanguard) self-identified and self-reported a breach to our regulator, ASIC, in relation to the product disclosure for the Vanguard Ethically Conscious Global Aggregate Bond Index Fund and ETF (the Fund).
While the Fund was managed by Vanguard in alignment with the Index methodology, Vanguard identified that the descriptions of the exclusionary screens published by the Index provider and within Vanguard’s Product Disclosure Statement (PDS) were not sufficiently detailed.
At the time, the description of the exclusionary screens did not provide a sufficiently detailed explanation that certain debt issuers lacking research coverage were still included in the benchmark. As a result, it is possible the portfolio held exposure to certain securities that may not have been reasonably expected by investors.
The issue was self-identified and self-reported to ASIC, and as soon as the disclosure weakness was identified, Vanguard acted swiftly to inform investors and enhance the disclosure. We have fully cooperated with ASIC’s queries on the matter since it was first self-reported.
There was never any intention to mislead, but Vanguard recognises it has not lived up to the high standards it holds itself accountable to and apologises for the concern this matter may cause for our clients.
Remedial actions Vanguard has taken
Vanguard requested that the ASX place a trading halt on the ETF share class (VEFI) on 15 February 2021, which was granted to allow for a disclosure update. The halt was lifted on 16 February 2021, after Vanguard issued an ASX announcement (for the ETF) and a unit holder notice (for the funds) to inform investors that a PDS update to better reflect the benchmark index methodology was to follow, including greater detail on how the exclusionary screens were being applied.
Vanguard contacted clients who made applications into the funds during this February 15-16 period and offered them the opportunity to withdraw their application. Where clients elected to proceed with a purchase, Vanguard provided a right to return the product and be repaid the application amount for a one-month period.
The Supplementary PDS (SPDS) for the ETF and the PDS for the funds were updated and issued on 17 February and 18 February 2021 respectively with an enhanced and more thorough description of the benchmark index methodology including greater detail in how the exclusionary screens were implemented.
On 10 March 2021, the PDS and SPDS for the funds and ETF were updated further. Having then completed Vanguard’s internal analysis, we made final amendments to the disclosure, clarifying how the screens operate and removing the investor alert.
In the subsequent two years Vanguard has undertaken a range of measures to strengthen the end to end product disclosure process including but not limited to our range of ESG offerings. We have also strengthened our capabilities and resourcing through:
- The appointment of a Head of ESG Product, and additional compliance and product resourcing in the product disclosure and oversight teams
- Enhancing our disclosure due diligence process and investing in improved technology to support PDS production
Since the product launched in 2018, ESG research capabilities, standards, disclosure, and investor expectations have continued to evolve in our market.
Vanguard is committed to serving our clients ESG investing needs and will continue to enhance our ESG product management, oversight and disclosure, in addition to actively working with the industry, policy makers and regulators in pursuit of continuous improvement in this space.
With over AUD $12 trillion in assets under management globally as of 30 June 2023, including over AUD $3.4 trillion in ETFs, Vanguard is one of the world’s largest global investment management companies. In Australia, Vanguard has been serving financial advisers, retail clients and institutional investors for over 25 years.