SEC fines Goldman Sachs’s GSAM $4m for not following its own ESG policies

Rick Steves

“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”.

The Securities and Exchange Commission has charged Goldman Sachs Asset Management, L.P. (GSAM) for policies and procedures failures related to ESG investments.

The asset management firm agreed to pay a $4 million penalty to settle the SEC complaint that involved two mutual funds and one separately managed account strategy that were marketed as Environmental, Social, and Governance (ESG) investments.

According to the regulator, from 2017 to 2020, 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 order found that 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.

However, ESG questionnaires were frequently completed after securities were already selected for inclusion and relied on previous ESG research, which was often conducted in a different manner than what was required in its policies and procedures.

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.

Asset managers must follow ESG policies they themselves set

Sanjay Wadhwa, Deputy Director of the SEC’s Division of Enforcement and head of its Climate and ESG Task Force, said: “In response to investor demand, advisers like Goldman Sachs Asset Management are increasingly branding and marketing their funds and strategies as ‘ESG. 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.”

The Division of Enforcement’s Climate and ESG Task Force analyzes disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies.

Andrew Dean, Co-Chief of the Enforcement Division’s Asset Management Unit, added: “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”.

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