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SEC Takes Aim at Green Washing

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Stockholm (NordSIP) – The fear of greenwashing is one of the most recurrent concerns voiced by asset owners looking to support the sustainability agenda. To tackle this risk, the Securities and Exchange Commission (SEC) – the financial services authority (FSA) of the USA –  announced the creation of a Climate and ESG Task Force in the Division of Enforcement, on March 4th.

A year on, the Task Force is hard at work. On May 23rd, 2022, the SEC charged BNY Mellon Investment Adviser with “misstatements and omissions about (…) ESG considerations in making investment decisions for certain mutual funds that it managed”.

SEC Finds Misleading Statements

The SEC’s found that, between July 2018 and September 2021, BNY Mellon Investment Adviser “represented or implied in various statements that all investments in the funds had undergone an ESG quality review, even though that was not always the case” despite the SEC finding that “numerous investments held by certain funds did not have an ESG quality review score as of the time of investment.”

“Registered investment advisers and funds are increasingly offering and evaluating investments that employ ESG strategies or incorporate certain ESG criteria, in part to meet investor demand for such strategies and investments,” said Sanjay Wadhwa, Deputy Director of the SEC’s Division of Enforcement and head of its Climate and ESG Task Force. “Here, our order finds that BNY Mellon Investment Adviser did not always perform the ESG quality review that it disclosed using as part of its investment selection process for certain mutual funds it advised.”

“Investors are increasingly focused on ESG considerations when making investment decisions,” said Adam S. Aderton, Co-Chief of the SEC Enforcement Division’s Asset Management Unit and a member of the Task Force. “As this action illustrates, the Commission will hold investment advisers accountable when they do not accurately describe their incorporation of ESG factors into their investment selection process.”

The View From BNY Mellon

BNY Mellon Investment Adviser settled the charges without admitting or denying the SEC’s findings, agreeing to a cease-and-desist order, a censure, and to pay a US$1.5 million fine. “The SEC’s order also noted that BNY Mellon Investment Adviser promptly undertook remedial acts and cooperated with Commission staff in its investigation,” the USA FSA explained.

“BNY Mellon Investment Adviser (BNYMIA) is pleased to resolve this matter concerning certain statements it made about the ESG review process for six U.S. mutual funds. While none of these funds were part of the BNYMIA “Sustainable” fund range, 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,” Courtney Woolston, Vice President – Communications BNY Mellon Investment Management, told NordSIP on this occasion. “We are proud of our heritage and track record in responsible investment and are committed to continuing to be a trusted partner for our clients’ responsible investing needs,” Woolston added.

It is also important to note that this regulatory matter was focused on information provided about US Mutual funds, not the Undertakings for Collective Investment in Transferable Securities (UCITS) in Europe. ESG information provided in the USA differs from that provided in Europe, BNY Mellon Investment Management clarified to NordSIP.

Europe Takes a Back Seat

Although similar efforts in Northern Europe have been promised, no Nordic FSA has yet taken a similar course of action against asset managers operating in the Nordics. For all the regulatory efforts of the European Commission, American authorities continue to take a lead on a topic which Europeans are so keen to brag about to their counterparts across the pond.

Image courtesy of Dim Hou via Pixabay

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