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Goldman Sachs to Pay $4M SEC Penalty in ESG Fund Case

By Lydia Beyoud

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What You Need to Know

  • Regulators says the firm “had several policies and procedures failures" involving ESG research used to pick and track stock holdings.

Goldman Sachs Group Inc. will pay $4 million to settle U.S. regulators’ claims that its asset-management unit didn’t properly weigh environmental, social and governance factors in some of its investment products.

The Securities and Exchange Commission said that the Goldman Sachs Asset Management unit “had several policies and procedures failures involving the ESG research its investment teams used to select and monitor securities.”

The alleged misconduct occurred from April 2017 to February 2020, the SEC said in a statement on Tuesday.

The unit didn’t have any written policies or procedures for ESG research in one of the products from April 2017 to June 2018, and once they were put in place failed to consistently follow them prior to February 2020, the markets watchdog said.

The SEC said the bank’s unit didn’t properly complete ESG questionnaires on companies it planned to include in an investment portfolio prior to their selection.

The issues related to Goldman Sachs ESG Emerging Markets Equity Fund, Goldman Sachs International Equity ESG Fund and a U.S. Equity ESG separately-managed account strategy, Goldman Sachs said in a statement.

“These historical matters did not materially impact the investments’ satisfaction of the ESG criteria contained in those policies and procedures,” it said. The bank didn’t admit or deny the regulator’s findings.

The SEC under Chair Gary Gensler has proposed stricter rules on fund names and more standardized disclosures for investment products that carry an ESG label.

The agency has also brought cases over ESG disclosures and marketing, including one involving a unit of Bank of New York Mellon Corp. for allegedly falsely implying some mutual funds had undergone an ESG quality review.

“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 agency’s enforcement unit and head of its Climate and ESG Task Force.

“They must establish reasonable policies and procedures governing how the ESG factors will be evaluated as part of the investment process,” he added.

Goldman Sachs spokeswoman Mary Athridge said the bank 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.”

(Photo: Bloomberg)

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