IA Fined for Misstatements on ESG Marketing

An investment adviser settled SEC charges regarding the extent to which its investments took account of environmental, social and governance factors.

According to the Order, the adviser misrepresented to clients, prospective clients and in public reports that a significant percentage of its total assets under management ("AUM") integrated ESG factors, with figures varying from 70 percent to 94 percent during the relevant period. The SEC found that these percentages included numerous passive exchange-traded funds that did not consider ESG factors in their investment decisions.

The SEC also determined that the adviser's internal processes for calculating ESG integration were inconsistent. The SEC stated that the adviser relied on a "heatmap" prepared by an individual employee, categorizing entire investment teams' assets as "ESG integrated," without a specific strategy-level assessment. The SEC found that the adviser used a survey-based method to evaluate assets, which produced inconsistent results. Further, the SEC determined that the adviser lacked comprehensive written policies to consistently define or measure ESG integration.

The SEC found that these misrepresentations constituted violations of Advisers Act Section 206(4) and 206(2) ("Prohibited transactions by investment advisers") and Advisers Act Rules 206(4)-1 ("Investment Adviser Marketing"), 206(4)-7 ("Compliance procedures and practices") and 206(4)-8 ("Pooled investment vehicles").

To settle the charges, the adviser agreed to (i) cease and desist from further violations, (ii) a censure and (iii) pay a civil penalty of $17.5 million.