The US Securities and Exchange Commission (SEC) has fined the Bank of New York Mellon $1.5 million for misstatements and omissions about its ESG considerations, as onlookers say the “party will be over for greenwashers”.
The SEC announced yesterday that BNY Mellon’s penalty was a result of statements the investment bank had made from July 2018 to September 2021.
These statements were that all investments in certain funds had undergone an ESG quality review.
Yet, on a closer look, the SEC found that at the time of BNY Mellon’s claims, numerous investments in those funds did not have an ESG quality review score.
Sanjay Wadhwa, deputy director of the SEC’s Division of Enforcement and head of its Climate and ESG Task Force, commented: “Registered investment advisers 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.
“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.”
The fine has been seen by some as a turning point for greenwashing.
Diana Rose, Insig AI’s head of ESG Research, said of the fine: “This case may be the first of its kind, but we all know it won't be the last. The SEC's greenwashing taskforce is on a mission, and this will be a wake-up call to fund managers...
“Overstating the ESG qualities of a fund to attract capital (i.e., greenwashing) is a very real problem which risks damaging not only the credibility of ESG, but its potential to actually get capital flowing in ways that will benefit society and help make the planet liveable for our children.”
Rose did, however, comment that regulation is proving an issue.
She asked: “What is an 'ESG quality review' in the first place? Every fund will take a different approach to this process, but it's guaranteed there will be subjectivity and maybe even smoke and mirrors.”
She has called for oversight and transparency on the process, as well as consistency and due diligence in the method to help overcome this.
BNY Mellon said the fine only impacts six US-domiciled funds and that it does not affect UK/European regions.
In a statement, BNY Mellon Investment Adviser (BNYMIA) said it was "pleased to resolve this matter" and pointed out that none of the funds were part of the BNYMIA 'Sustainable' fund range.
The firm said it took its regulatory and compliance responsibilities seriously and had updated materials "as part of our commitment to ensuring our communications to investors are precise and complete".
The firm said: "We are proud of our heritage and track record in responsible investment and are committed to continuing to be a trusted partner for our clients’ responsible investing needs."
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