The Australian Securities and Investments Commission has started civil proceedings in the Federal Court, alleging Mercer made false and misleading statements about the sustainable nature of some of its investment options.
ASIC deputy chairwoman Sarah Court said the agency was committed to ensuring corporate sustainability claims were accurate.
"There is increased demand for sustainability-related financial products and with that comes the growing risk of misleading marketing and greenwashing," she said.
"If financial products make sustainable investment claims to investors and potential investors, they need to reflect the true position.
"If investments in certain industries like fossil fuels are said to be excluded, this promise must be upheld."
ASIC alleges Mercer made statements on its website about various "Sustainable Plus" investment options, which excluded companies involved in carbon-intensive fossil fuels such as thermal coal, as well as organisations linked to alcohol and gambling.
However, members who took up the option had investments in companies involved in each of the industries the website said were excluded.
As well as pursuing financial penalties and public declarations, the watchdog will also seek an injunction preventing Mercer from making any other alleged misleading statements.
The date for the first case management hearing has not yet been set.
In a 2022 analysis by Market Forces, Mercer was among eight of 11 major super fund investment options labelled sustainable or socially responsible but potentially misleading.
Market Forces superannuation funds campaigner Brett Morgan commended ASIC and said the corporate sector had been put on notice.
"It's great to see ASIC taking enforcement action,'' Mr Morgan said.
"Greenwashing needs to be stamped out because it's undermining real climate action and potentially misleading millions of super fund members."
AAP has contacted Mercer for comment.
It comes after law changes two years ago following the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services.
The new laws enhanced ASIC's powers to take action on broader superannuation trustee conduct.
In 2021, ASIC did a review to establish whether the practices of funds that offer sustainable products align with their promotion of these products.
The Australian Competition and Consumer Commission has also been on high alert for greenwashing as part of a broader crackdown on misleading products and services.
Last year, one of Australia's biggest oil and gas companies, Santos, was accused of greenwashing its clean energy claims.
The Australasian Centre for Corporate Responsibility launched proceedings in Federal Court against Santos claiming the company engaged in misleading or deceptive conduct in its 2020 annual report.
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