The Securities and Exchange Commission has charged Goldman Sachs Asset Management, L.P. (GSAM) for policy and procedure failures involving two mutual funds and one separately managed account strategy marketed as Environmental, Social, and Governance (ESG) investments.
To settle the charges, GSAM agreed to pay a $4 million penalty, according to the SEC.
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. That said, the SEC notes that 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.”
The SEC cites as an example that while GSAM’s policies and procedures required its personnel to complete a questionnaire for every company it planned to include in each product’s investment portfolio prior to the selection, personnel completed many of the ESG questionnaires only after securities were already selected for inclusion and relied on previous ESG research, which the SEC said was “often conducted in a different manner than what was required in its policies and procedures.” The SEC noted that GSAM shared information about its policies and procedures, “which it failed to follow consistently, with third parties, including intermediaries and the funds’ board of trustees.”
“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 differs from their practices.”
According to the SEC, 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. Without admitting or denying the SEC’s findings, GSAM agreed to a cease-and-desist order, a censure, and a $4 million penalty.
The SEC’s Division of Enforcement’s Climate and ESG Task Force was formed in March 2021. Among other things, it analyzes disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies.
