The US Securities and Exchange Commission (SEC) has fined BNY Mellon’s investment adviser division $1.5m for allegedly misstating and omitting information about environmental, social and governance (ESG) investment considerations for mutual funds that it managed.
The SEC said that from July 2018 to September 2021, the division 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.
“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.
He added, “Here, we allege 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.”
The SEC said BNY Mellon did not admit or deny its findings, but it agreed to a cease-and-desist order, a censure, and to pay the penalty.
The case marks the first time the SEC has settled with an investment adviser concerning ESG statements.
The fine comes two days before the agency is set to propose rules establishing how financial firms can apply ESG or other green labels to investment funds.
“BNY Mellon Investment Adviser is pleased to resolve this matter concerning certain statements it made about the ESG review process for six US mutual funds,” a spokesperson said in a statement, adding that the firm takes seriously its regulatory and compliance responsibilities.
BNY Mellon Investment Adviser also “promptly undertook remedial acts and cooperated with Commission staff in its investigation,” the SEC said.
Sustainable investing and the mitigation of greenwashing has become a key area for the Wall Street regulator as assets under management have ballooned.
The SEC said it would focus on ESG-related advisory services and investment products, including mutual funds, exchange-traded funds, and private fund offerings, and review whether registered investment advisors and registered funds “are accurately disclosing their ESG investing approaches” in its report on examination.
It will also look at possible “misrepresentations of the ESG factors considered or incorporated” into portfolio selection.
Last year, the agency launched the Climate and ESG Task Force within the Division of Enforcement to “proactively identify ESG-related misconduct” and issued a risk alert on the Division of Examinations’ review of ESG investing.
The Commission and federal prosecutors are also investigating DWS Group after the Wall Street Journal reported that Deutsche Bank‘s asset-management arm had overstated how much it used sustainable investing criteria to manage its assets.
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