The Securities and Exchange Commission charged Goldman Sachs Asset Management, L.P. (GSAM) with policy and procedure violations involving two mutual funds and one separately managed account strategy marketed as Environmental, Social, and Governance (ESG) investments. GSAM agreed to pay a $4 million fine to settle the charges.
According to the SEC’s order, from April 2017 to February 2020, GSAM broke many rules and procedures with the ESG research its investment teams used to choose and track securities. From April 2017 to June 2018, the company did not have any documented rules and procedures for ESG research on one product. Once policies and procedures were formed, they were not regularly followed before February 2020.
For example, the order finds that GSAM’s policies and procedures required its employees to fill out a questionnaire for every company it planned to include in each product’s investment portfolio before making a choice. However, employees filled out many of the ESG questionnaires after securities had already been chosen for inclusion and relied on previous ESG research that was often done differently than what was required by its policies and procedures.
Third parties, including intermediaries and the fund’s board of trustees, were given information about GSAM’s policies and procedures, which it failed to follow consistently.
“In response to investor demand, advisers like Goldman Sachs Asset Management are increasingly branding and marketing their funds and strategies as ‘ESG,’” said Sanjay Wadhwa, Deputy Director of the SEC’s Division of Enforcement and head of its Climate and ESG Task Force. “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 differ from their practices.”
“Today’s action reinforces that investment advisers must develop and adhere to their policies and procedures over their investment processes, including ESG research, to ensure investors receive the advisory services they would expect to receive from an ESG investment,” said Andrew Dean, Co-Chief of the Enforcement Division’s Asset Management Unit.
GSAM consented to the entry of the SEC’s order finding that it violated Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7. GSAM agreed to a cease-and-desist order, a censure, and a $4 million fine without admitting or denying what the SEC found.
Salvatore Massa, Stephen Holden, and Mr. Dean from the Enforcement Division’s Asset Management Unit in the New York Regional Office did the SEC’s investigation.
The Division of Enforcement’s Climate and ESG Task Force was formed in March 2021. Among other things, it looks at disclosure and compliance issues related to the ESG strategies of investment advisers and funds.
Source: SEC
