Industry Updates

Goldman Sachs AM fined $4m by SEC over three-year lapse in ESG standards

GSAM did not confirm or deny the regulator’s findings

Jamie Gordon

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Goldman Sachs Asset Management (GSAM) will pay $4m to settle charges by the Securities and Exchange Commission (SEC) that it had “several policies and procedures failures” in the ESG research it used to select fund constituents.

In a statement on Tuesday, the regulator said from April 2017 to June 2018, the company failed to have “any written policies and procedures” for ESG research in one product and even after policies were brought in, GSAM “failed to follow them consistently” until February 2020.

The SEC’s order found GSAM’s ESG policies required staff to complete a questionnaire for each company it planned to add to ESG product portfolios, however, these questionnaires were often completed after companies had already been earmarked for inclusion.

These selection processes also relied upon previous ESG research, which was often based on outdated methodologies and procedures.

GSAM also shared information about its policies and procedures with intermediaries and its funds’ boards of trustees, while failing to follow these measures consistently, the SEC said.

The US regulator’s order found the asset manager in violation of the Investment Advisers Act of 1940 relating to the policies it had in place on two mutual funds and one separately managed account strategy marketed as ESG.

Without admitting to any wrongdoing, GSAM agreed to a cease-and-desist order, a censure and to pay a $4m fine.

On Tuesday, the Andrew Dean, co-chief of the SEC Enforcement Division’s Asset Management Unit, commented: “Today’s action reinforces that investment advisers must develop and adhere to their policies and procedures over their investment processes, including ESG research, to ensure investors receive the advisory services they would expect to receive from an ESG investment.”

Sanjay Wadhwa, deputy director of the SEC’s Division of Enforcement and head of its Climate and ESG Task Force, added: “[Asset managers] must establish reasonable policies and procedures governing how the ESG factors will be evaluated as part of the investment process, and then follow those policies and procedures, to avoid providing investors with information about these products that differs from their practices.”

In a statement, GSAM said it was “pleased to have resolved this matter” regarding historical policies and procedures.

“These historical matters did not materially impact the investments’ satisfaction of the ESG criteria contained in those policies and procedures.

“GSAM is committed to its pursuit of best practices across its portfolios for sustainable, long-term value creation that helps its clients meet their investing needs.”

The SEC’s efforts to clamp down on asset managers’ ESG practices come only half a year after police raided the offices of German asset manager DWS and its majority owner Deutsche Bank amid allegations of greenwashing.

The asset manager’s CEO, Asoka Woehrmann, stepped down hours after the raid. His replacement, Stefan Hoops, took to LinkedIn to express concerns about “ambiguous” ESG rules and urged media coverage of such issues to “keep it factual”.

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