An Australian investment manager has been ordered to pay a $7.3 million penalty following court findings concerning the operation and promotion of an ethical investment fund.

The Supreme Court of New South Wales found that Fiducian Investment Management Services failed to exercise the required care and diligence as responsible entity of its Diversified Social Aspirations Fund.

The court also found that statements about the fund’s ethical and socially responsible objectives were liable to mislead the public.

The fund invested through several underlying funds. Between October 2019 and May 2024, those underlying investments included companies receiving revenue from activities including fossil fuels.

Disclosure documents said the fund would seek investments that were positive for society and the environment while avoiding specified harmful activities. They also said the portfolio would be routinely monitored.

The court found there were not reasonable grounds for the relevant environmental and social claims.

ASIC said the manager failed to adequately monitor underlying investments, review their strategies, change investments or revise the fund’s stated objectives so that they reflected its actual holdings.

The fund closed in 2024.

The case illustrates why investors should look beyond words such as “green,” “sustainable,” “responsible” and “ethical.”

Those descriptions do not all have one universal investment meaning. One fund may exclude fossil-fuel producers, while another may invest in them and attempt to influence company behaviour. A third may apply environmental criteria to only part of its portfolio.

Investors should examine the actual holdings, exclusion policy, voting record and method used to measure environmental or social performance.

Funds investing through other managed funds require particular attention. The top-level investment manager may not directly select every company and must have systems for checking whether underlying holdings remain consistent with its promises.

ASIC Chair Sarah Court said sustainability claims must be supported by proper oversight and governance.

The outcome does not imply that every {ethical investment fund} is misleading. It does demonstrate that good intentions or appealing product names are not substitutes for verifiable processes.

Investors should also remember that an ethical strategy is not a guarantee of superior returns. Fees, diversification, valuation and risk remain relevant even when a product genuinely follows its stated principles.

The penalty provides a clear financial warning: sustainability claims are representations to investors, not optional marketing language.