Representing financial professionals, financial institutions and investors in investment loss, employment and disclosure matters, and in regulatory investigations nationwide.

Goldman Sachs Asset Management charged with failing to follow ESG procedures

On Behalf of | Dec 13, 2022 | Regulatory Investigations

Goldman Sachs Asset Management, L.P.(GSAM) has been charged with violations involving its funds marketed as environmental, social and governance (ESG) investments, Financial Advisor reports.

The Securities and Exchange Commission announced GSAM had agreed to pay a $4 million penalty to settle the charges. The SEC said the firm had failed to follow its policies and procedures involving two mutual funds and one separately managed account strategy marketed as ESG investments.

The policy failures, which occurred from 2017 through 2020, involved ESG research the firm’s investment teams used to select and monitor securities. The SEC found that GSAM failed to have any written policies and procedures for ESG research in one product, and once policies and procedures were established, it did not follow them consistently before February 2020.

While GSAM personnel were required to complete a questionnaire for every company included in each product’s investment portfolio before selection, they completed many of the ESG questionnaires after securities were already selected for inclusion, and relied on previous ESG research that was often not conducted in the required manner.

“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.”

Goldman Sachs Asset Management was found to have violated Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7. The company did not admit or deny the SEC’s findings but did consent to the financial penalty as well as a cease-and-desist order and a censure.

GSAM said it was pleased to have resolved the matter, adding that “these historical matters” did not materially impact the investments satisfying the ESG criteria set forth in its policies and procedures.

The attorneys at Lewitas Hyman were formally senior attorneys in the SEC’s Division of Enforcement. We have represented clients in regulatory matters while working at Morgan Stanley and in private practice at some of the world’s largest law firms. Therefore, we understand the complexities that come with being the subject of a regulatory inquiry, and we have the experience to guide and advise you through any type of regulatory investigation. If you are the subject of a regulatory proceeding, contact Lewitas Hyman at (888) 655-6002 or through our online contact form for a free consultation.