On September 25, 2023, the SEC announced a settled administrative proceeding against a major investment advisor in which it agreed to pay a $19 million civil penalty for, effectively, greenwashing activities--i.e., pretending to be more environmentally-friendly and sustainable than it was. Specifically, as stated by the SEC press release, the investment advisor had "marketed itself as a leader in ESG that adhered to specific policies for integrating ESG considerations into its investments; however, from August 2018 until late 2021, [the investment advisor] failed to adequately implement certain provisions of its global ESG integration policy as it had led clients and investors to believe it would."
This type of SEC enforcement action is similar to others in the handful of public ESG-related SEC enforcement actions to date. Two other enforcement actions had similarly focused on failures by different investment advisors to implement appropriate procedures to consider ESG factors, although the prior penalties--$1.5 million (May 2022) and $4 million (November 2022)--are substantially less than the penalty of $19 million imposed here. Nonetheless, it is clear that this type of greenwashing--a failure to "integrate [] ESG factors in research and investment recommendations" despite public statements to that effect--remains a key focus for SEC enforcement actions.
One other interesting point is that this enforcement proceeding did not involve the SEC's Climate and ESG Task Force--this enforcement action does not appear on the task force's website (https://www.sec.gov/securities-topics/enforcement-task-force-focused-climate-esg-issues), nor was the task force mentioned in the SEC's press release. Given that this enforcement proceeding falls squarely within the announced remit of the SEC's Climate and ESG Task Force, this may indicate that said task force--which has not announced any enforcement proceedings since November 2022--may be diminishing in significance.
In the second enforcement action, the SEC's order finds that DIMA made materially misleading statements about its controls for incorporating ESG factors into research and investment recommendations for ESG integrated products, including certain actively managed mutual funds and separately managed accounts. The order finds that DIMA marketed itself as a leader in ESG that adhered to specific policies for integrating ESG considerations into its investments; however, from August 2018 until late 2021, DIMA failed to adequately implement certain provisions of its global ESG integration policy as it had led clients and investors to believe it would. The order finds that DIMA also failed to adopt and implement policies and procedures reasonably designed to ensure that its public statements about the ESG integrated products were accurate.
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