Last week, the US Securities and Exchange Commission (SEC) made its historically first settlement of $1.5mn with an investment advisor in a case concerning ESG-related greenwashing.
The allegations in the case against BNY Mellon Investment Adviser (“BNY”) concerned misstatements in relation to its scrutiny of ESG data when making investments. BNY allegedly represented to investors that all of its investments were reviewed for ESG quality, even though investments in certain funds were effectively exempted. The SEC supported its allegations by pointing to BNY’s failure to adopt and implement policies and procedures to prevent the inclusion of untrue statements of facts in investor prospectuses and other documents. Such failure allegedly resulted in 67 out of 185 investments that BNY made between July 2018 and September 2021 being marketed as ESG-reviewed, when in fact they lacked any ESG quality score.
The case is another proof of concept after the SEC launched its dedicated greenwashing taskforce last year. It also confirms a shift climate risk lawyers have been highlighting since late 2021 – a sharp and rapid increase in greenwashing claims. Importantly, the most pertinent allegations the SEC has made concerned the internal processes and policies that led to the misstatements of the remit of the EGS review process, rather than the substance of such review as a whole. The case also points towards an expanding class of defendants in greenwashing lawsuits, which were until recently focused predominantly on fossil fuel producers and companies in carbon-intensive industries. As an investment manager, BNY can be seen as a market enabler whose public statements about the ESG status of its investment can have profound implications on directing financial flow towards socially and environmentally responsible investments.
With investors’ increasing focus on the ESG metrics and the SEC’s recent proposal on climate-related disclosures for public companies, cases like this can be expected to emerge with an increasing frequency.
The US Securities and Exchange Commission has fined BNY Mellon’s investment adviser division $1.5mn for allegedly misstating and omitting information about environmental, social and governance (ESG) investment considerations for mutual funds that it managed.