Goldman Sachs to pay $4 million in penalties over ESG fund claims

Goldman Sachs has agreed to pay a $4 million penalty over US regulatory charges that the bank’s wealth management division misled clients about environmental, social and governance (ESG) investments.

The settlement with the Securities and Exchange Commission highlights the growing restrictions on potentially unsubstantiated claims by financial groups when it comes to socially conscious investment products.

The SEC settlement concerned two mutual funds and one separately managed account strategy. Prior to February 2020, Goldman Sachs employees completed certain ESG questionnaires to evaluate fund companies after the securities had been selected, the US regulator said in his statement on Tuesday.

According to the SEC, Goldman did not adopt written policies and procedures for how it evaluated ESG factors as part of its investment process until after the strategy was implemented.

“Today’s action reinforces the need for investment advisers to develop and adhere to policies and procedures for their investment processes, including ESG research,” said Andrew Dean, Associate Director of the SEC’s Division of Asset Management Enforcement.

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Goldman agreed to the penalty, as well as the termination and censure, without acknowledging the SEC’s findings. The agency’s civil investigation into the bank’s ESG claims first came to light in June.

In a statement, Goldman said it was “pleased to resolve this matter, which involved past policies and procedures relating to three investment portfolios of Goldman Sachs Asset Management’s private equity group.”

Goldman’s fine is more than double the $1.5 million fine BNY Mellon paid earlier this year for allegedly misrepresenting and omitting ESG considerations for its mutual funds. The case was the first time the SEC had settled with an investment adviser over ESG statements.

According to the SEC, as of April 2022, Goldman Sachs’ asset management division had about $1.5 billion under management. According to the regulator, in 2020 the two investment funds and the separately managed account strategy together managed 238 million dollars.

ESG investment products have become the fastest growing segment of the wealth management industry, with assets estimated to grow to $2.7 billion by 2021. Critics have argued that certain companies and investors have used the still loosely defined ESG to make unrealistic or misleading claims. about their sustainability and governance qualities.

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Separately on Tuesday, the US Department of Labor reversed a Trump-era rule that discouraged asset managers from considering ESG criteria when offering pension investment opportunities to businesses. Analysts say the new rules are likely to allow more ESG funds to enter pension plans offered by businesses.

Source: https://www.ft.com/content/0e2b6e41-4113-437f-824b-80d7acd29579