SEC accuses BNY Mellon unit of making false ESG claims

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Diving Brief:

  • JThe Securities and Exchange Commission (SEC) has accused a unit of BNY Mellon of misrepresenting how it applies environmental, social and governance (ESG) criteria when making investment decisions for some of its funds. mutual funds.
  • the SEC said Monday that BNY Mellon Investment Adviser (BNYMIA) incorrectly stated that it had subjected all investments in mutual funds to an ESG quality review. BNYMIA agreed to pay a $1.5 million fine.
  • “We take our regulatory and compliance responsibilities seriously and have updated our materials as part of our commitment to ensuring our investor communications are accurate and complete,” a BNYMIA spokesperson said in a statement. communicated.

Overview of the dive:

JThe SEC, citing its investor protection mandate, has pledged to crack down on companies involved in finance and other sectors that overstate their commitment to sustainability.

So-called greenwashing – or exaggerated efforts to limit environmental damage – is commonplace, with nearly three in five executives (58%) saying their companies engage in such deception, according to a global survey sponsored by Google Cloud.

Thirty-five percent of U.S. executives, and 29% globally, agree with the phrase “my company treats sustainability like a publicity stunt,” according to Harris Poll’s survey of 1,491 CFOs and other executives at the C-suite or VP level. in 14 markets.

Targeting such deception, The SEC plans to adopt “consistent, comparable, and decision-useful” standards for climate risk disclosure after a public comment period ending June 17.

According to a proposal announced in March, the SEC would require companies to describe on Form 10-K their governance and strategy for dealing with climate risk and their plan to achieve the goals they have set for reducing that risk. The agency would also require public companies to disclose their greenhouse gas emissions.

“Companies and investors would benefit from clear rules of conduct,” SEC Chairman Gary Gensler said in announcing the proposal.

CFOs are under increasing pressure from investors, regulators, legislators and other stakeholders to adopt ESG best practices. IAccording to Gensler, investors with $130 trillion in assets under management have pushed for climate risk disclosure.

BNYMIA is apparently not the only financial institution scrutinized by the SEC for sustainability claims. The agency said in a “risk alert” in April 2021 that some investment advisers, investment firms and private funds may have misled investors about their approach to investing based on ESG principles.

Some investment firms lacked sufficient policies and procedures for ESG investing, provided “poor or unclear” documentation for ESG-related decisions, and pursued compliance efforts that did not appear to be the protect against disclosures or mismarketing information, the agency said, describing a review by the Review Division.

The SEC, in its statement on Monday, said that from July 2018 to September 2021, BNYMIA disclosed in the prospectuses of six U.S. mutual funds that an affiliated sub-advisor pursued ESG quality reviews when seeking all investments. BNYMIA has also made such statements to the boards of directors of the funds.

In fact, the funds “made investments that did not always receive ESG quality ratings,” the SEC said. The funds “integrate ESG considerations into investment decisions, but do not have a specific mandate to follow ESG principles for any investment”.

The funds held $5.3 billion in net assets as of March 31, the SEC said.

“Investors are increasingly focusing on ESG considerations when making investment decisions,” said Adam Aderton, co-head of the law enforcement division’s asset management unit. from the SEC in a statement.

“The commission will hold investment advisers accountable when they fail to accurately describe their integration of ESG factors into their investment selection process,” Aderton said.

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