SEC Issues First ESG-Related Enforcement Action Against an Investment Adviser

SEC settles charges with an investment adviser for $1.5 Million

On May 23rd, the U.S. Securities and Exchange Commission’s (The SEC or The Commission) Climate and ESG Task Force issued its first enforcement action against an investment adviser related to omissions and misstatements about Environmental, Social, and Governance (ESG) factors used in investment decisions. 

According to the SEC’s order, from July 2018 to September 2021, the adviser claimed all investments in certain mutual funds had undergone an ESG quality review as part of the investment process. The SEC claims this was not the case as numerous investments lacked an ESG quality review score.

The adviser – a firm with over 200 employees and over $300 billion in AUM – has settled with the SEC, and agreed to pay a $1.5 million penalty, along with agreeing to a cease-and-desist order, and a censure.

This enforcement action comes on the heels of the Climate and ESG Task Force’s recent action against the Brazilian firm Vale S.A., and demonstrates the SEC’s aggressive pursuit of firms – even some of the industry’s largest – that make inaccurate statements about how ESG considerations are used in investment strategies. Similar to the SEC’s action against Vale S.A., this enforcement action reinforces that the Climate and ESG Task Force is willing to pursue omissions and misstatements, even those that occurred several years ago.

The enforcement should also serve as a reminder to investment advisers, especially those that advise on pooled investment vehicles, of the need to be diligent in their claims about how ESG considerations affect investment decisions. With an agenda item set on the SEC’s May 25th calendar to discuss the potential rule amendments to standardize ESG disclosures for investment advisers and investment companies, it is likely that investment advisers will face even greater scrutiny around their ESG investment strategies and claims. 

Next steps 

ACA’s ESG Advisory Practice will continue to monitor activity and actions of the SEC’s Climate and ESG Task Force, as well as the SEC’s agency-wide initiatives regarding ESG. We will offer additional guidance on these actions as they arise.  

How we help

We provide a number of services to help advisers meet the SEC's ESG requirements, including:

• Program management
• Portfolio oversight
• ESG assurance

To discuss this enforcement action or to hear our team’s perspective on this and other ESG issues, please contact our ESG Advisory Practice.   

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