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Unit of Goldman Sachs fined $4 million for ESG investment mistakes

In order to resolve allegations that it did not adhere to its own policies and procedures with regard to three investment products that were promoted for their environmental, social, and governance (ESG) aspects, Goldman Sachs' asset management division agreed to pay $4 million.

In a deal announced on Tuesday, Goldman Sachs Asset Management (GSAM) and the Securities and Exchange Commission (SEC) will continue to investigate whether investment advisers are providing evidence to support their ESG claims. The SEC fined a BNY Mellon subsidiary $1.5 million earlier this year for failing to uphold its ESG statements with reference to a few of its mutual funds.


A proposal that would compel registered investment advisers, investment firms, and business development firms to provide increased disclosures concerning funds that assert that ESG techniques influence their investment decisions was proposed by the SEC in the spring. The industry has voiced opposition to the initiative.

Two of the firm's mutual funds and a separately managed account strategy were allegedly involved in the GSAM failures. Each time, the business violated the Investment Advisers Act by failing to follow the stated policies and processes it had in place for conducting ESG research.


When preparing to add new securities to the products' ESG investing pool, for instance, GSAM's regulations required staff to finish a questionnaire and materiality matrix. The SEC indicated in its decision that the tools would be taken into account when calculating position size, and their outcomes would be kept in a centralized database.


The agency discovered that staff members frequently completed questionnaires after securities had already been chosen, relying instead on prior ESG research that was "not uniformly applied across issuers." It continued that this hampered its inquiry since GSAM staff members did not properly keep the questionnaires in a centralized location.


The alleged errors allegedly took place between April 2017 and February 2020. According to the SEC, ESG investment policies and procedures for the separately managed account strategy were not in place until June 2018 and were not put into practice during the relevant time.


The organization said that employees in GSAM's fundamental equality group had a "inconsistent" understanding of their responsibilities regarding the questionnaires, with some staff members erroneously assuming that the tool was "optional." The company was also criticized for disclosing its rules and procedures to outside parties even though it has not implemented them consistently within the company.


According to a press release from Sanjay Wadhwa, deputy director of the SEC's Enforcement Division and leader of the organization's Climate and ESG Task Force, "In response to investor demand, advisers like Goldman Sachs Asset Management are increasingly branding and marketing their funds and strategies as ‘ESG’. When they do, they must establish reasonable policies and procedures governing how the ESG factors will be evaluated as part of the investment process and then follow those policies and procedures to avoid providing investors with information about these products that differs from their practices."


In response, Goldman Sachs announced in a press release, "Goldman Sachs Asset Management is pleased to have resolved this matter, which addressed historical policies and procedures related to three of the Goldman Sachs Asset Management Fundamental Equity group’s investment portfolios."

By fLEXI tEAM


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