ESG Enforcement Tracker

Key facts:

In October 2024, the SEC charged WisdomTree, an investment adviser incorporated in Delaware and registered in New York, with making misstatements about three exchange-traded funds it marketed as incorporating environmental, social, and governance factors (the ESG funds), and for compliance failures relating to the execution of investment strategies for the ESG funds.

The SEC found that, from March 2020 to November 2022, WisdomTree had represented to the ESG funds’ board of trustees and in the prospectuses for the ESG funds, that it was excluding companies involved in, among other activities, fossil fuels and tobacco. However, WisdomTree’s process for identifying such companies was flawed because:

1. the data that WisdomTree purchased from a third party vendor identified only a subset of companies involved in fossil fuels, and WisdomTree did not purchase supplemental data that would have identified other companies that were also involved in fossil fuels; and
2. the third-party vendor’s data did not capture certain retailers that derived less than 10% of their revenues from the retail sales of tobacco products.

This meant that the ESG funds continued to invest in the securities of companies involved in activities including coal mining, transportation of coal, natural gas extraction and distribution and the retail sale of tobacco products. Despite being aware of the limitations of the data in relation to fossil fuel companies from at least September 2020, WisdomTree failed to inform the board or rectify the prospectuses to address the misstatements relating to both fossil fuel and tobacco companies until November 2022.

Additionally, the SEC found that WisdomTree did not adopt any written policies and procedures in relation to the screening process that was being used to exclude companies involved in fossil fuel and tobacco related activities from the ESG funds’ portfolios.

The SEC ordered that WisdomTree is censured, that it ceases and desists from committing or causing any future violations of the relevant provisions of, and rules under, the Investment Advisers Act 1940 and the Investment Company Act 1940, and that it pays a civil penalty of US$4 million to the SEC within 10 days of the entry of the SEC’s order.

WisdomTree consented to the entry of the SEC’s order without admitting or denying the SEC’s findings.