ESG Enforcement Tracker

Key facts:

In November 2022, the SEC charged Goldman Sachs Asset Management, L.P. (GSAM) for failing to implement policies and procedures in respect of two mutual funds and a separately managed account strategy marketed as ESG investments. In anticipation of the institution of cease and desist proceedings, GSAM submitted an offer of settlement, which was accepted by the SEC.

When advisors market their funds and strategies as “ESG”, they must: (i) put policies in place governing the evaluation of ESG factors; and (ii) follow those policies. This avoids giving investors information that may differ from their practice. The SEC submitted that GSAM had failed to adopt and implement policies reasonably designed to prevent violations of the federal securities laws concerning the investment process used by GSAM’s Fundamental Equity group when advising an ESG separately managed account strategy and two ESG mutual funds (ESG investment products).

The SEC found that, from 2017-2018, GSAM had failed to have the necessary written policies and procedures in place, and even once policies and procedures were established, up to February 2020, it failed to follow them consistently. For instance, the questionnaire that GSAM was required to complete for each company it planned to include in product investment portfolios prior to selection was instead routinely completed after the securities were selected, or not completed at all. GSAM was also said to have relied on previous ESG research that did not comply with its own policies. The SEC submitted that this contradicted representations made by GSAM in prospectuses and other promotional materials when the ESG investment products were launched.

Without any acceptance of the SEC’s findings, GSAM agreed to a cease and desist order, a censure, and a US$4 million penalty.