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Goldman Sachs to pay $4mn penalty over ESG fund claims

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Goldman Sachs has agreed to pay a $4mn penalty over US regulatory costs that the financial institution’s asset administration division misled prospects about environmental, social and governance (ESG) investments.

The settlement with the Securities and Alternate Fee highlights a widening clampdown on probably unsupported claims made by monetary teams in relation to socially-conscious funding merchandise.

The SEC’s settlement concerned two mutual funds and one individually managed account technique. Earlier than February 2020, Goldman Sachs workers accomplished sure ESG questionnaires for evaluating firms included within the funds after securities have been already picked, the US regulator mentioned in a press release on Tuesday.

Based on the SEC, Goldman additionally didn’t undertake written insurance policies and procedures governing the way it evaluated ESG components as a part of its funding course of till “a while after” the technique was launched.

“Right now’s motion reinforces that funding advisers should develop and cling to their insurance policies and procedures over their funding processes, together with ESG analysis,” mentioned Andrew Dean, co-head of the SEC’s asset administration enforcement division.

Goldman agreed to the penalty in addition to a cease-and-desist order and a censure, with out admitting to the SEC’s findings. The company’s civil investigation into the financial institution’s ESG claims first got here to gentle in June.

In a press release, Goldman mentioned it was “happy to have resolved this matter, which addressed historic insurance policies and procedures associated to a few of the Goldman Sachs Asset Administration elementary fairness group’s funding portfolios”.

The wonderful for Goldman is greater than double the $1.5mn BNY Mellon agreed to pay earlier this 12 months for allegedly misstating and omitting details about ESG issues for its mutual funds. That case marked the primary time the SEC settled with an funding adviser regarding ESG statements.

As of April 2022, Goldman Sachs’s asset administration division managed about $1.5tn, the SEC mentioned. In 2020, the 2 mutual funds and individually managed account technique managed a mixed $238mn, in accordance with the regulator.

ESG funding merchandise have grow to be the fastest-growing section of the asset administration trade, with property rising to an estimated $2.7tn in 2021. Critics have argued that sure firms and traders have used ESG, which stays loosely outlined, to make unrealistic or deceptive claims about their sustainability and governance credentials.

Individually on Tuesday, the US Division of Labor reversed a Trump-era rule that deterred asset managers from contemplating ESG standards when providing retirement investing choices to companies. The brand new guidelines are prone to permit for extra ESG funds to be included in retirement plans provided by companies, analysts mentioned.

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