Goldman Sachs has agreed to pay a $4 million penalty following charges from the US Securities and Exchange Commission (SEC) that its asset management division misled clients regarding environmental, social, and governance (ESG) investments. This settlement underscores the growing regulatory focus on ensuring that financial institutions back up their claims around socially responsible investment products.
Regulatory Findings
The SEC’s investigation centred on two mutual funds and one separately managed account strategy. Before February 2020, Goldman Sachs employees completed ESG evaluation questionnaires for companies only after securities had already been selected for the funds, according to the SEC. Furthermore, the regulator noted that Goldman Sachs did not have written policies or procedures in place to guide the ESG evaluation process until some time after the strategy had been launched.
Andrew Dean, co-head of the SEC’s asset management enforcement division, emphasised the importance of adhering to clearly defined policies, stating:
“Today’s action reinforces that investment advisers must develop and adhere to their policies and procedures over their investment processes, including ESG research.”
Settlement and Implications
Goldman Sachs has accepted the penalty, a cease-and-desist order, and a censure without admitting or denying the SEC’s findings. The bank characterised the issue as related to “historical policies and procedures” and expressed satisfaction in resolving the matter.
The $4 million penalty is notable as it is more than double the $1.5 million fine paid earlier this year by BNY Mellon over similar allegations of misstating ESG-related information for its mutual funds. That case marked the first SEC settlement with an investment adviser over ESG claims, highlighting the agency’s increasing focus on greenwashing in the asset management industry.
Broader Context
Goldman Sachs’s asset management division managed approximately $1.5 trillion as of April 2022, with the affected mutual funds and account strategy handling a combined $238 million as of 2020, according to the SEC.
The controversy reflects wider concerns about the ESG investment sector, which has seen rapid growth. By 2021, ESG-related assets surged to an estimated $2.7 trillion, making it one of the fastest-growing segments of the asset management industry. However, critics argue that the term ESG is loosely defined, enabling some companies and investors to make unsubstantiated or exaggerated claims about their sustainability and governance credentials.
Changing Regulations
The settlement also comes amid broader shifts in ESG regulation. On the same day as the SEC settlement, the US Department of Labor reversed a Trump-era rule that discouraged asset managers from incorporating ESG criteria into retirement investment options. The new rules are expected to encourage the inclusion of ESG funds in retirement plans, potentially accelerating their growth.
Conclusion
The Goldman Sachs case is yet another reminder of the rising concerns surrounding ESG investments and the increasing scrutiny on fund managers’ claims. As regulatory bodies tighten their grip on greenwashing and misrepresentation, investors are becoming more aware of their rights to seek accountability. This has led to a notable rise in sustainable fund claims, as individuals demand transparency and compensation for financial losses caused by misleading ESG practices.
At Claim My Loss, we specialise in helping investors who have been misled by unsustainable or misrepresented funds. Our expert team provides tailored guidance to assess your case, quantify your losses, and pursue compensation through the most effective channels.
If you believe you’ve been misled by a sustainable fund, don’t hesitate to take action. Contact Claim My Loss today and take the first step towards reclaiming what’s rightfully yours.
