The US Securities and Exchange Commission (SEC) is investigating Goldman Sachs’ asset-management arm over claims made by several of its mutual funds purporting to invest on the basis of environmental, social and governance (ESG) standards.

Although not many details of the investigation are currently known, the probe builds on recent actions by the SEC to crack down on suspected greenwashing in the ESG and sustainable finance space.

Ambiguity in ESG Investing 

ESG as an investment concept lacks widely accepted definitions, criteria and metrics. As such, fund managers and rating firms have historically been free to set their own definitions and have largely been unimpeded by regulators in doing so.

ESG investing has therefore been popular and profitable for asset managers who have, against their self-selected criteria, marketed financial products as sustainable to satisfy investor demand to address issues like climate change. In the first quarter of 2022, assets in funds claiming to focus on ESG and sustainability reached USD2.78 trillion, up from less than USD1 trillion in 2020.

Recently, however, regulatory scrutiny of ESG credentials is rising.

Goldman Investigation 

Not much is currently known about the Goldman investigation besides that it seemingly focuses on mutual funds sporting ‘clean energy’ or ‘ESG’ in their names.

One such fund is Goldman’s US Equity ESG Fund, which rebranded from ‘Blue Chip Fund’ in June 2020. In its regulatory documents, Goldman claims that the fund aims to invest 80% of its assets in stocks that do not profit from the sale of alcohol, tobacco, weapons, coal, oil, gas and other products. Although most holdings undergo ESG analysis prior to investment, Goldman reserves the right to forego ESG screening and can invest up to 20% of the fund’s assets in stocks that deviate from ESG standards.

If the SEC finds that the fund’s actual investment practices materially deviate from these advertised standards, Goldman may be held accountable for misleading investors.

SEC’s recent activity against greenwashing in finance sectors 

This investigation is the latest reported development in the SEC’s campaign against greenwashing.

In early 2021, the SEC launched an enforcement taskforce to investigate sustainability and ESG claims made by investment managers and companies. The profound implications of this on ESG funds has been demonstrated both home and abroad by:


These developments show that momentum is building behind regulatory investigation, intervention and enforcement in cases of alleged ESG greenwashing. The SEC is consolidating its role as ESG watchdog, having created a Climate and ESG Task Force in March 2021 and proposed in March 2022 long-awaited rules determining the scope and definition of ESG investing, including what language a mutual fund can use to describe itself as sustainable or environmentally friendly.

It is expected that more SEC investigations will be announced before the SEC’s fiscal year-end in September.

The plaintiffs' bar in the US has already shown great interest in ESG disclosures, and a number of securities class actions and/or shareholder derivative suits relating to ESG issues, including climate change, diversity, Me Too and cyber security, have already been filed. It may indeed be only a matter of time before ESG-related shareholder litigation takes off in the US, as the SEC’s regulatory actions prompt shareholders to mount claims for misrepresentations relating to greenwashing or breaches of fiduciary duties against their investment managers. The implications for ESG funds may be far-reaching.