The Securities and Exchange Commission today 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 ( aka, ESG) investments.
To make the charges go away, GSAM agreed to pay a $4 million penalty. AutoInformed notes with no insider knowledge of this matter whatsoever or holdings of Goldman products to the best of its knowledge, that this is a minor parking ticket. Could it be that the SEC was perhaps lagging in its regulatory duties under the previous administration, and is now using this as a public relations ploy as it plays catch-up monitoring such investments?
GSAM consented to the entry of the SEC’s order finding that it violated Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7. Without admitting or denying the SEC’s findings, GSAM agreed to a cease-and-desist order, a censure, and the $4 million penalty.
The SEC’s order says that 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, GSAM also failed to have any written policies and procedures for ESG research in one product.
Moreover, once policies and procedures were established, it failed to follow them consistently prior to February 2020. The SEC said “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.”
“In response to investor demand, advisers like Goldman Sachs Asset Management are increasingly branding and marketing their funds and strategies as ‘ESG,’” said Sanjay Wadhwa, Deputy Director of the SEC’s Division of Enforcement and head of its Climate and ESG Task Force.
“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,” Wadhwa concluded.
A statement provided by GSAM said it “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. As the order notes, the Goldman Sachs Asset Management Fundamental Equity group had conducted ESG research on the issuers held in each of those portfolios. And, as of February 2020, the Goldman Sachs Asset Management Fundamental Equity group had completed the ESG questionnaires provided by its policies and procedures for the issuers held in those portfolios.”
“Today’s action reinforces that investment advisers must develop and adhere to their policies and procedures over their investment processes, including ESG research, to ensure investors receive the advisory services they would expect to receive from an ESG investment,” said Andrew Dean, Co-Chief of the Enforcement Division’s Asset Management Unit.
We will give the last word to Goldman:
“These historical matters did not materially impact the investments’ satisfaction of the ESG criteria contained in those policies and procedures. This matter related to the Goldman Sachs ESG Emerging Markets Equity Fund, Goldman Sachs International Equity ESG Fund and a US Equity ESG separately-managed account strategy. Goldman Sachs Asset Management is committed to its pursuit of best practices across its portfolios for sustainable, long-term value creation that helps its clients meet their investing needs.”
SEC Charges Goldman Sachs for Ignoring ESG Investment Policies, Procedures
The Securities and Exchange Commission today 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 ( aka, ESG) investments.
To make the charges go away, GSAM agreed to pay a $4 million penalty. AutoInformed notes with no insider knowledge of this matter whatsoever or holdings of Goldman products to the best of its knowledge, that this is a minor parking ticket. Could it be that the SEC was perhaps lagging in its regulatory duties under the previous administration, and is now using this as a public relations ploy as it plays catch-up monitoring such investments?
GSAM consented to the entry of the SEC’s order finding that it violated Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7. Without admitting or denying the SEC’s findings, GSAM agreed to a cease-and-desist order, a censure, and the $4 million penalty.
The SEC’s order says that 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, GSAM also failed to have any written policies and procedures for ESG research in one product.
Moreover, once policies and procedures were established, it failed to follow them consistently prior to February 2020. The SEC said “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.”
“In response to investor demand, advisers like Goldman Sachs Asset Management are increasingly branding and marketing their funds and strategies as ‘ESG,’” said Sanjay Wadhwa, Deputy Director of the SEC’s Division of Enforcement and head of its Climate and ESG Task Force.
“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,” Wadhwa concluded.
A statement provided by GSAM said it “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. As the order notes, the Goldman Sachs Asset Management Fundamental Equity group had conducted ESG research on the issuers held in each of those portfolios. And, as of February 2020, the Goldman Sachs Asset Management Fundamental Equity group had completed the ESG questionnaires provided by its policies and procedures for the issuers held in those portfolios.”
“Today’s action reinforces that investment advisers must develop and adhere to their policies and procedures over their investment processes, including ESG research, to ensure investors receive the advisory services they would expect to receive from an ESG investment,” said Andrew Dean, Co-Chief of the Enforcement Division’s Asset Management Unit.
We will give the last word to Goldman:
“These historical matters did not materially impact the investments’ satisfaction of the ESG criteria contained in those policies and procedures. This matter related to the Goldman Sachs ESG Emerging Markets Equity Fund, Goldman Sachs International Equity ESG Fund and a US Equity ESG separately-managed account strategy. Goldman Sachs Asset Management is committed to its pursuit of best practices across its portfolios for sustainable, long-term value creation that helps its clients meet their investing needs.”