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Keeping you in-the-know on environmental, social and governance developments

Ed. note: In observance of Thanksgiving here in the U.S., our offices will close today at noon and reopen Monday. No blogs will be posted Thursday or Friday.

Yesterday, the SEC – through its Division of Enforcement’s Climate and ESG Task Force – announced it had charged Goldman Sachs Asset Management, L.P. (GSAM) for

“policies and procedures failures involving two mutual funds and one separately managed account strategy marketed as Environmental, Social, and Governance (ESG) investments. To settle the charges, GSAM agreed to pay a $4 million penalty.” 

The announcement offered more details:

“… from April 2017 until February 2020, GSAM had several policies and procedures failures involving the ESG research its investment teams used to select and monitor securities. From April 2017 until June 2018, the company failed to have any written policies and procedures for ESG research in one product, and once policies and procedures were established, it failed to follow them consistently prior to February 2020. For example, the order finds that GSAM’s policies and procedures required its personnel to complete a questionnaire for every company it planned to include in each product’s investment portfolio prior to the selection; however, personnel completed many of the ESG questionnaires after securities were already selected for inclusion and relied on previous ESG research, which was often conducted in a different manner than what was required in its policies and procedures. GSAM shared information about its policies and procedures, which it failed to follow consistently, with third parties, including intermediaries and the funds’ board of trustees.”

What This Means

Even ahead of finalizing a pair of pending proposals about ESG investment practices by funds, the SEC is showing it is moving forward with enforcement against greenwashing by ESG investment funds. I wouldn’t be surprised if we see more actions like this in the near future – and possibly against operating companies making green claims. As John Jenkins wrote on about a recent speech by a senior Division of Enforcement official about SEC’s potential view that ESG extends beyond traditional materiality for disclosure:

“… a quote from Kelly Gibson of Morgan Lewis, who previously led the SEC’s Climate & ESG Task Force, sums up the way companies should approach ESG-related statements in the current environment: ‘If you’re making a statement about ESG [environmental, social and governance performance], the SEC is going to consider it to be material. . . I know that’s a blanket generalization, but at least from what I’m seeing that’s not a point to argue with the SEC.’”

Given that perspective, companies should make sure they close any gaps between policies, practices and public statements made about ESG.

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The Editor

Lawrence Heim has been practicing in the field of ESG management for almost 40 years. He began his career as a legal assistant in the Environmental Practice of Vinson & Elkins working for a partner who is nationally recognized and an adjunct professor of environmental law at the University of Texas Law School. He moved into technical environmental consulting with ENSR Consulting & Engineering at the height of environmental regulatory development, working across a range of disciplines. He was one… View Profile