In March 2021, the Securities and Exchange Commission’s (SEC) then-acting chair, Allison Herren Lee, announced the creation of an Environmental, Social and Governance (ESG) Task Force within the SEC’s Division of Enforcement. Sanjay Wadhwa, the deputy director of the SEC’s Enforcement Division heads the ESG Task Force. The initial focus of this task force was to “identify any material gaps or misstatements in issuers’ disclosure of climate risks under existing [SEC] rules.” Before yesterday, the ESG Task Force had not yet made a publicly announced climate-related enforcement action initiated by it.
However, on May 23, the SEC made its first public announcement that tied a settled order directly to the work of its ESG Task Force. The SEC fined BNY Mellon Investment Adviser Inc., a wholly-owned subsidiary of BNY Mellon, $1.5 million over alleged ESG disclosure failures. The entity allegedly misled clients into thinking that certain fund investments had undergone so-called ESG quality reviews when they had not.
Notably, the alleged inaccurate disclosure was made between July 2018 and September 2021 in prospectuses and other materials where BNY Mellon Investment Adviser represented or implied that all investments in the funds had undergone an ESG quality review. In reality, the order states that “numerous equity and/or corporate bond investments . . . did not have an ESG quality review score as of the time of the investment.” The entity did not admit or deny the findings but agreed to a cease and desist order, censure and the $1.5 million civil penalty. Remedial actions were also “promptly undertaken” by BNY Mellon, such as updating its disclosure materials and cooperating with the Commission.
“As this action illustrates, the [C]ommission will hold investment advisers accountable when they do not accurately describe their incorporation of ESG factors into their investment selection process,” stated Adam S. Aderton, co-chief of the SEC’s Enforcement Division’s Asset Management Unit and member of the ESG task force. Time will tell how many additional enforcement actions will be initiated by the ESG Task Force, particularly if the SEC’s proposed climate change disclosure and other ESG-related disclosure rules, are passed.
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