UPDATE 1-Vanguard Australia found guilty of making misleading environmental claims

(Rewrites throughout with details on case, comments from ASIC and Vanguard, and background on greenwashing)

March 28 (Reuters) - The Federal Court of Australia found U.S. asset manager Vanguard's local unit guilty of making misleading claims about filtering out bond issuers with significant holdings in sectors such as fossil fuels, Australia's securities regulator said.

The Australian Securities and Investments Commission (ASIC) said on Thursday Vanguard Investments Australia had promised investors that one of its fund filtered out bond issuers with investments in industries including fossil fuels when it was not always the case.

"Vanguard had claimed the index excluded only companies with significant business activities in a range of industries, including those involving fossil fuels," the regulator said in a statement.

"But (Vanguard) has admitted that a significant proportion of securities in the index and the fund were from issuers that were not researched or screened against applicable ESG criteria."

The fund in question is Vanguard Ethically Conscious Global Aggregate Bond Index Fund which removes corporate bonds exposed to fossil fuels, nuclear power, alcohol, among other sectors, according to Vanguard Australia's website.

"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," Vanguard said in an emailed response to Reuters.

ASIC has been stepping up action against Australian firms which are found to have made exaggerated claims about their environment-friendly investments and products, called "greenwashing".

The matter has been listed for further hearing on Aug. 1, when the court will consider imposing appropriate penalty for Vanguard's conduct, the regulator said.

(Reporting by Sameer Manekar and Himanshi Akhand in Bengaluru; Editing by Rashmi Aich)