The term "greenwashing" has been coined to cover conduct where a company says it is acting in an environmentally responsible manner when, in fact, it is not.

Ethical investment funds are nothing new: they have been around for decades. Fund managers find a subject that appeals to a sector of the market and says that it will ensure that investors' money is put only to uses that comply with the requirements of that sector.

Ethical investing, to be cynical, is essentially a way of increasing management fees: there are audits of companies, often on regular schedule, to ensure that investments are both initially and subsequently placed only in companies that meet certain criteria. Ethical investments range from ensuring adequate conditions for workers, child labour and, of course, environmental concerns.

The recent concentration on so-called ESG (Environmental, Social and Governance) subjects, in which governments have, increasingly, become involved has led to attention from many directions.

The Australia Securities and Investments Commission, or ASIC, is a regulator that has an extraordinarily wide remit and often seeks to extend it. Within its core remit is the question of investment funds and the representations they make to investors.

In the present case, ASIC alleges that Vanguard's investment documents represented that " all securities in the Vanguard Ethically Conscious Global Aggregate Bond Index Fund (Hedged) (Fund) were screened against certain ESG criteria."

But Vanguard relied on an external index - think Standard and Poor's for ESG assessment. Here's where it went wrong for Vanguard.

ASIC says "Investments held by the Fund were based on an index called the Bloomberg Barclays MSCI Global Aggregate SRI Exclusions Float Adjusted Index (Index). Vanguard claimed the Index excluded issuers with significant business activities in a range of industries, including those involving fossil fuels.

"However, ASIC alleges that ESG research was not conducted over a significant proportion of issuers of bonds in the Index and therefore the Fund. "

ASIC alleges that more than 200 bonds exposed investor funds to investments which had ties to fossil fuels, including those with activities linked to oil and gas exploration.

ASIC alleges that Vanguard misled the public in Product Disclosure Statements published between 7 August 2018 to 17 February 2021, a media release issued in August 2018, in statements on its website, statements made in an interview with Finance News Network and statements made in a presentation at a Finance News Network Fund Manager Event, both of which were recorded and published online.

The case will raise significant concerns across the financial sector as to how much reliance can be made on published information about companies, in a way that the so-called "credit ratings agencies" produced - to be polite - inexact information about bundled investments leading up to the global financial crisis.