Dive Brief:
- The Securities and Exchange Commission (SEC) charged a unit of BNY Mellon with misstating how it applied environmental, social and governance (ESG) criteria when making investment decisions for some of its mutual funds.
- The SEC said Monday that BNY Mellon Investment Adviser (BNYMIA) incorrectly said that it had subjected all investments in the mutual funds to an ESG quality review. BNYMIA agreed to pay a $1.5 million fine.
- “We take our regulatory and compliance responsibilities seriously and have updated our materials as part of our commitment to ensuring our communications to investors are precise and complete,” a BNYMIA spokesperson said in a statement.
Dive Insight:
The SEC, citing its mandate to protect investors, has pledged to crack down on companies involved in finance and other sectors that overstate their commitment to sustainability.
So-called greenwashing — or exaggerating efforts to limit harm to the environment — is rife, with nearly three out of five executives (58%) saying their companies engage in such deception, according to a global survey sponsored by Google Cloud.
Thirty-five percent of U.S. executives, and 29% worldwide, agree with the phrase, “my company treats sustainability like a PR stunt,” according to the survey by Harris Poll of 1,491 CFOs and other executives in the C-suite or VP level across 14 markets.
Targeting such deception, the SEC plans to enact “consistent, comparable and decision-useful” standards for disclosure on climate risk after a public comment period ending June 17.
Under a proposal announced in March, the SEC would require companies to describe on Form 10-K their governance and strategy toward climate risk and their plan to achieve any targets they’ve set for curbing such risk. The agency would also mandate that public companies disclose their greenhouse gas emissions.
“Companies and investors alike would benefit from the clear rules of the road,” SEC Chair Gary Gensler said in announcing the proposal.
CFOs face rising pressure from investors, regulators, lawmakers and other stakeholders to adopt ESG best practices. Investors with $130 trillion in assets under management have pushed for climate risk disclosures, according to Gensler.
BNYMIA is apparently not the only financial institution scrutinized by the SEC for sustainability claims. The agency said in a “risk alert” in April 2021 that some investment advisers, investment companies and private funds may have misguided investors about their approach to investing based on ESG principles.
Some investment firms lacked sufficient policies and procedures for ESG investing, provided “weak or unclear” documentation for ESG-related decisions and pursued compliance efforts that did not appear to safeguard against flawed disclosures or marketing information, the agency said, describing a review by the Examinations Division.
The SEC in its statement Monday said that from July 2018 until September 2021, BNYMIA indicated in prospectuses for six U.S. mutual funds that an affiliated sub-adviser pursued ESG quality reviews when researching all investments. BNYMIA made such statements to the funds’ boards as well.
In reality, the funds “made investments that had not always received ESG quality reviews,” the SEC said. The funds “incorporate ESG considerations into investment decisions, but do not have a specific mandate to follow ESG principles for any investment.”
The funds held $5.3 billion in net assets as of March 31, the SEC said.
“Investors are increasingly focused on ESG considerations when making investment decisions,” Adam Aderton, co-chief of the SEC’s Enforcement Division’s Asset Management Unit said in a statement.
“The commission will hold investment advisers accountable when they do not accurately describe their incorporation of ESG factors into their investment selection process,” Aderton said.
