Compliance

Compliance Corner: SEC Fines BNY Mellon Investment Adviser Over ESG Failings

Editorial Staff, May 25, 2022

articleimage

The latest compliance news: regulatory developments, punishments, guidance, permissions and new product and service offerings.

BNY Mellon Investment Adviser, Securities and Exchange Commission
The BNY Mellon Investment Adviser, for misstatements and omissions about ESG considerations in making investment decisions for certain mutual funds it ran. 

BNY Mellon Investment Adviser has agreed to pay a $1.5 million penalty to settle the matter. 

The case highlights how regulators around the world are increasingly conscious of policing so-called “greenwashing” by banks, asset managers and other financial sector firms. In the UK, the Advertising Standards Authority is reportedly looking to censure HSBC for its advertising practices. 

In its statement this week, the SEC said that, from July 2018 to September 2021, BNY Mellon Investment Adviser “represented or implied in various statements that all investments in the funds had undergone an ESG quality review, even though that was not always the case. The order finds that numerous investments held by certain funds did not have an ESG quality review score as of the time of investment.”

“Registered investment advisors and funds are increasingly offering and evaluating investments that employ ESG strategies or incorporate certain ESG criteria, in part to meet investor demand for such strategies and investments,” Sanjay Wadhwa, deputy director of the SEC’s division of enforcement and head of its climate and ESG Task Force, said. “Here, our order finds that BNY Mellon Investment Adviser did not always perform the ESG quality review that it disclosed using as part of its investment selection process for certain mutual funds it advised.”

“Investors are increasingly focused on ESG considerations when making investment decisions,” Adam S Aderton, co-chief of the SEC Enforcement Division’s Asset Management Unit and a member of the Task Force, said. “As this action illustrates, the Commission will hold investment advisors accountable when they do not accurately describe their incorporation of ESG factors into their investment selection process.”

Without admitting or denying the SEC’s findings, BNY Mellon Investment Adviser agreed to a cease-and-desist order, a censure, and to pay a $1.5 million penalty. The SEC’s order also noted that BNY Mellon Investment Adviser promptly undertook remedial acts and cooperated with Commission staff in its investigation.

Around the world, the “greenwashing” theme is a problem for wealth managers and others promoting the idea of environmental, social and governance-themed (ESG) investing. If banks, asset managers and others exaggerate or distort what they say they are doing, it will foster distrust and public cynicism. At the same time, it also fuels worries that some “green” objectives, such as achieving net-zero carbon emissions by a certain date, aren’t realistic – a situation highlighted by surging energy bills.

In August 2021 media reports said that US regulators were probing Deutsche Bank's asset management business, DWS Group. The firm’s former head of sustainability said that it had exaggerated how it used sustainability measures to manage assets. DWS strongly rejected the allegations.

Register for FamilyWealthReport today

Gain access to regular and exclusive research on the global wealth management sector along with the opportunity to attend industry events such as exclusive invites to Breakfast Briefings and Summits in the major wealth management centres and industry leading awards programmes