On Tuesday the Securities and Exchange Commission officially charged Goldman Sachs Asset Management with violating its policies and procedures with respect to investing in Environmental, Socially-oriented, and Governance-oriented investments. The regulator fined the company $4 million.
In a statement the regulatory agency said the charges were levied over, “policies and procedures failures involving two mutual funds and one separately managed account strategy marketed as Environmental, Social, and Governance (ESG) investments.”
The regulator added that Goldman had agreed to pay the penalty without admitting any wrongdoing, or admitting or denying any of the regulator’s findings.
In recent years investors had flocked to ESG-focused funds, under the assumption that companies that followed ESG policies like workforce diversity or environmental consciousness would benefit from increased business from a public which would respect the responsibility demonstrated by such leadership. So far this year however, such funds have seen massive net outflows of cash. There is speculation firms which manage such funds are now looking to invest more based upon profitability, however this is bringing them in conflict with the policies and procedures which they have advertised would govern the selections of equities placed in the funds.
Official rulemaking for ESG claims and disclosures are only just now beginning to be formatted by US and European regulators.
In a separate statement, Goldman Sachs said, “Goldman Sachs Asset Management, L.P. 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.”
In its determination, the SEC found that between April 2017 and February 2020, Goldman Sachs had several failures to adhere to policies and procedures in generating the ESG research which its analyst teams used to select and monitor securities.
The SEC said, “From April 2017 until June 2018, the company failed to have any written policies and procedures for ESG research in one product, and once policies and procedures were established, it failed to follow them consistently prior to February 2020.”
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