Goldman Sachs asset management arm (GSAM) has been hit with a $4 million fine after accusations of “policies and procedures failures” involving multiple funds marketed as ESG investments were raised by the US Securities and Exchange Commission (SEC).
The $4 million (£3.5m) penalty relates to two mutual funds, and another separately managed account called the US Equity ESG Strategy, which the firm marketed as ESG investments.
The US financial regulator claimed the firm had not adopted written policies and procedures governing how it evaluated ESG factors as part of its investment process until “some time” after the strategy was introduced. Furthermore, despite finally adopting written policies in June 2018, it still failed to follow them consistently until February 2020.
“In response to investor demand, advisers like GSAM are increasingly branding and marketing their funds and strategies as ‘ESG’,” said the SEC in a statement yesterday.
“When they do, 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.”
Goldman Sachs agreed to pay the penalty but refused to be comment on the SEC’s findings, releasing a statement saying, “Goldman Sachs Asset Management is committed to its pursuit of best practices across its portfolios for sustainable, long-term value creation that helps its clients meet their investing needs.”
The regulator first launched a civil investigation into the firm’s ESG fund practices in June of this year, looking into whether the metrics promised in their marketing materials were misleading to investors.
The move comes amid a wider crackdown on ‘greenwashing’ – on both sides of the Atlantic. The Financial Conduct Authority (FCA), here in the UK, recently proposed new rules to clamp down on greenwashing, targeting investment product sustainability labels and introducing restrictions on how terms like ‘ESG’, ‘green’ or ‘sustainable’ can be used.
For now, the most advanced regime of ESG product disclosures remains the EU’s Sustainable Finance Disclosure Regime (SFDR). Reporting requirements commenced this year, with the next big milestone scheduled for 1 January 2023, when firms must produce detailed SFDR templates to add to pre-contractual and periodic reports.
News like this casts a negative light on ESG investing, but some believe the bad press could lead to a positive step forward in the sector.
Read the SEC’s official press release here.
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