Goldman Sachs Is Charged by the SEC for Violating ESG Investment Policies

The U.S. Securities and Exchange Commission (SEC) revealed that it has filed charges against the asset management division of Goldman Sachs for failing to develop and follow policies and procedures for some ESG funds.

Goldman Sachs Asset Management (GSAM) has agreed to settle the claims by paying a $4 million fine, without admitting or contesting the SEC's conclusions.

Andrew Dean, Co-Chief of the Asset Management Unit of the Enforcement Division of the SEC, stated:

"Today's action emphasizes the need for investment advisors to adopt and adhere to their policies and procedures regarding investment processes, including ESG research, in order to provide investors with the advisory services they would expect from an ESG investment."

The charges relate to policy and procedure errors in three ESG-themed GSAM portfolios between 2017 and 2020: the Goldman Sachs ESG Emerging Markets Equity Fund, the Goldman Sachs International Equity ESG Fund, and a US Equity ESG separately managed account strategy. According to an SEC inquiry into the funds, the failings included a lack of documented ESG research procedures and a failure to adhere to the standards once they were formed.

The charges come at a time when regulators worldwide are intensifying efforts to combat greenwashing, in which statements made by asset managers about the ESG or sustainability criteria utilized in a fund or company's investment process are exaggerated or deceptive. The SEC announced earlier this year that it had charged BNY Mellon Investment Adviser for misrepresenting the ESG considerations used in some of its mutual funds, and the CEO of Deutsche Bank's investment arm DWS resigned a day after police raided the firm's Frankfurt offices as part of an investigation into greenwashing allegations.

The United States, the United Kingdom, and the European Union are currently implementing labeling and disclosure standards for ESG and sustainability-themed funds.

The SEC's Deputy Director of Enforcement and Chairman of the Climate and ESG Task Force, Sanjay Wadhwa, said:

"In response to investor demand, advisers such as Goldman Sachs Asset Management are increasingly branding and marketing their funds and strategies as 'ESG.' When they do so, they must establish reasonable policies and procedures governing how ESG factors will be evaluated as part of the investment process, and then adhere to those policies and procedures, so as not to provide investors with information that differs from their practices."

Goldman Sachs issued a statement in response to the SEC's notification, stating that GSAM "is glad to have resolved this matter, which addressed historical rules and processes pertaining to three investment portfolios managed by the Goldman Sachs Asset Management Fundamental Equity group."

The company added:

"Goldman Sachs Asset Management is committed to pursuing best practices throughout its portfolios in order to generate sustainable, long-term value for its customers."