Morningstar invested in nuclear weapons components against ESG claims: ASIC

The five holdings were only for about two weeks each, and then divested as soon as Morningstar became aware of them. But ASIC takes a seriously dim view of ESG claims that don’t match reality these days.

ASIC has pinged Morningstar for being “liable to mislead” investors in its Morningstar International Shares (Unhedged) Fund after it the provider invested across five weapons companies, in contravention of its stated environmental, social and governance policies.

The corporate regulator was forced to issue two infringement notices after Morningstar self-reported holding securities in companies the provider’s own analytic arm, Sustainalytics, identified as being involved in “the development or production of nuclear weapons or providing core components for them”.

The product disclosure statement for the product, ASIC stated, said it excluded certain investments based on Morningstar’s ESG Policy, which in turn stated that it would not have exposure to controversial weapons companies.

Morningstar’s ESG policy states: “The [Morningstar International Shares (Unhedged) Fund], will not have exposure to stocks that have controversial weapons exposure as determined by Sustainalytics (unless they are included as part of an equity index futures basket or as part of an exchange-traded fund exposure).”

All five exposures – Honeywell International, General Dynamics Corp, Leidos Holdings, Northrop Grumman Corp and Raytheon Technologies Corp – were for a period of approximately two weeks, and were reportedly divested once Morningstar became aware of them.

Morningstar self-reported the incidents to ASIC, and was fined a total of $29,820 (amounts which have been paid, the regulator noted).

According to Sustainalytics, the five companies Morningstar invested in were involved in activities such as the production of key components of nuclear weapons, providing “depleted uranium and white phosphorus ammunition”, maintaining and refurbishing nuclear weapons and R&D for nuclear-capable missiles.

ASIC’s greenwashing campaign

The penalties levied by ASIC against Morningstar continue a concerted period of enforcement against companies that investment products based on false claims of adherence to ESG policies.

The corporate regulator currently has three high profile green-washing cases before the federal court, against Mercer Super, Vanguard Investments Australia and Active Super.

This comes after issuing greenwashing infringement notices against Tlou Energy Limited, Vanguard Investments Australia and Diversa Trustees Limited.

In the case against Morningstar, ASIC stated that the provider contravened section 12DF of the ASIC Act by “engaging in conduct that was liable to mislead the public as to the nature or the characteristic of the Morningstar International Shares (Unhedged) fund”.