SEC investigates Goldman Sachs ESG mutual funds

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Diving brief:

  • The Securities and Exchange Commission (SEC) is investigating Goldman Sachs’ asset management division to determine whether investments in two mutual funds meet environmental, social and governance criteria (ESG) measure their marketing materials, Bloomberg reported Friday, citing an unnamed source.
  • The agency has focused more attention in recent weeks toward an accurate depiction of ESG investment. He fined a BNY Mellon subsidiary $1.5 million last month for misrepresentations in prospectuses its mutual funds received ESG quality reviews when this was not always the case. The regulator then voted to issue two proposals: one to require funds that label themselves”ESG”, “sustainable” or “low carbon”, for example, investing at least 80% of their assets in certain sectors or types of investment, and another requiring more detailed information.
  • The SEC and Goldman declined to comment on the matter to The Wall Street Journal, Bloomberg and the Financial Times.

Overview of the dive:

The SEC’s rules defining ESG investing and its requirements are not final, so the regulator, for now, is looking to see how investing ESG funds in practice aligns with company promises. to shareholders.

Goldman manages at least four funds that have clean energy or ESG in their names, The Wall Street Journal reported. The bank changed the name of its Blue Chip Fund in June 2020 to US Equity ESG Fund, according to the publication. The holdings of this fund are subject to ESG analysis but may include investments in certain companies without such screening, the bank said, according to the Journal.

In regulatory filings, Goldman said its ESG fund aims to keep 80% of its net assets in stocks issued by companies that meet the fund manager’s criteria. This excludes companies that derive most of their revenue from the sale of alcohol, tobacco, weapons, coal, oil and gas. But it can also invest up to 20% of its net assets in stocks that deviate from its ESG standards, The Wall Street Journal reported.

ESG investing has nearly tripled in the past two years, according to Morningstar. Funds that claim to focus on sustainability or ESG factors held $2.78 trillion in assets in the first quarter of 2022, compared to less than $1 trillion at around the same point in 2020.

Given how quickly ESG investing has grown, regulators are looking to exert some control over the burgeoning space even as the rules are still taking shape.

“Regulators aren’t necessarily looking at a grace period,” Sonali Siriwardena, global head of ESG at law firm Simmons & Simmons, told Bloomberg, calling the recent increase in enforcement ‘ESG of ‘account’.

Officials of German financial regulator BaFin, prosecutors and around 50 police officers raided the Frankfurt offices of Deutsche Bank and its asset management subsidiary DWS last month over allegations that it had exaggerated its credentials ESG.

The SEC and the Department of Justice launched their own investigation into the DWS greenwashing allegations in August.

“I think these are the first waves of regulatory interventions that we’re likely to see in the coming months,” Siriwardena said.

Kristin Snyder, a partner at Debevoise & Plimpton who was previously deputy director of the SEC’s examinations division, told the Financial Times that she thinks it’s “very likely” the financial space will see “more cases.” before September 30″ similar to the BNY Mellon Penalty.

It is also possible, however, that the Goldman investigation may end without formal enforcement action.

“What happened at DWS is going to make asset managers pay a lot more attention to what they say,” Sasja Beslik, chief investment officer at NextGen ESG, told Bloomberg.

The raid and the allegations prompted the chief executive of DWS to resign, effective June 10. But before leaving the company, CEO Asoka Wöhrmann – at the bank’s annual general meeting – called the ESG concept of sustainability “too big an issue to make it OK for us for some individuals to exploit it for personal purposes.

“Continued inflows into ESG products highlight not only the confidence of our clients, but also the quality of our ESG offering,” he said, according to Bloomberg.

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