The US financial regulator has fined big-shot investment firm Goldman Sachs Asset Management (GSAM) US$4 million as the anti-greenwashing campaign gathers pace.
In a release last week, the Securities Exchange Commission (SEC) pinged GSAM for shoddy environmental, social and governance (ESG) practices in two funds and a separate account over 2017 to 2020.
According to the SEC, the manager failed to adequately back-up ESG claims at the time in the two relabeled funds – the GSAM International Equity ESG Fund and the Emerging Markets Equity ESG Fund – and the ESG separately managed account.
“The SEC’s order finds that, from April 2017 until February 2020, GSAM had several policies and procedures failures involving the ESG research its investment teams used to select and monitor securities,” the regulatory statement says. “From April 2017 until June 2018, the company failed to have any written policies and procedures for ESG research in one product, and once policies and procedures were established, it failed to follow them consistently prior to February 2020.”
GSAM accepted the punishment without admitting guilt.
Sanjay Wadhwa, SEC deputy enforcement, said in the release that the ESG label was now a popular “branding and marketing” tool for managers such as GSAM.
“When they do [brand strategies as ESG], they must establish reasonable policies and procedures governing how the ESG factors will be evaluated as part of the investment process, and then follow those policies and procedures, to avoid providing investors with information about these products that differs from their practices,” he said.
Wadhwa is also head of the SEC Climate and ESG Task Force – a specialist greenwash police unit formed last March.
Like most financial regulators, including the Financial Markets Authority, the SEC is closely monitoring the use of ESG (and related) in investment product marketing as the trend gains momentum.
The SEC says its ESG analysis uses “sophisticated data analysis to mine and assess information across registrants, to identify potential violations including material gaps or misstatements in issuers’ disclosure of climate risks under existing rules, and disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies”.
Since forming last year, the SEC greenwashing division has claimed a couple of scalps including a health insurance distribution business and another high-profile bank, BNY Mellon.
An investment advisory arm of BNY Mellon was fined US$1.5 billion this May after making “various statements that all investments in… [certain] funds had undergone an ESG quality review, even though that was not always the case”.