By: Ken Chase.
The U.S. Securities and Exchange Commission (SEC) is reportedly investigating the asset management arm of banking giant Goldman Sachs as part of its heightened scrutiny of asset funds that focus on environmental, social, and governance investment standards. According to a Wall Street Journal report, sources familiar with the matter have said that the investigation is civil in nature and is apparently examining the firm’s ESG-focused and clean energy funds.
The news comes on the heels of a May announcement of an SEC proposal offering rule changes designed to tighten restrictions on requirements for ESG fund claims to ensure greater standardization in marketing and investment disclosures. That proposal was developed in response to concerns by activists that U.S. fund managers were mislabeling funds as ESG in an attempt to attract environmentally conscious investors.
According to the SEC, the new rules would impact roughly three-quarters of funds and prevent them from including ESG labels in their names if the funds were not truly focused on ESG investment concerns. The new disclosure requirements have been advertised as a way to ensure that investors receive timely and accurate information about each fund’s ESG strategies, including disclosures in annual reports, prospectuses, and brochures used by financial advisors.
The rules would also require any fund that uses the ESG, low-carbon, or sustainable label to demonstrate that at least 80 percent of its investments are targeted to certain ESG-approved industries and companies.
Goldman Sachs has told regulators that its ESG offerings already commit to that 80 percent target by maintaining the bulk of investment assets in stocks that align with fund criteria. That target number does not include companies and industries that primarily make or sell products that fail to satisfy ESG standards, such as coal, oil, gas, weapons, and tobacco.
As multiple reports have noted, the investigation of Goldman’s ESG funds could result in no enforcement action. It is, however, another reminder of the government’s increased focus on so-called “greenwashing” claims in the investment fund industry, as the current administration’s whole-of-government focus on its climate change agenda continues to impact nearly every area of the American economy.