Action comes ahead of the agency’s ESG and green label rules proposal for financial firms this week.
The US Securities and Exchange Commission (US SEC) has fined BNY Mellon Investment Adviser US$1.5 million for allegedly misstating and omitting information about ESG investment considerations for funds it has managed.
The case marks the first time the SEC has settled with an investment adviser concerning ESG statements. Last year, the regulator launched a dedicated task force in its enforcement division to pursue ESG-related misconduct.
In its order against BNY Mellon Investment Adviser, the SEC said the firm represented or implied in various statements from July 2018 to September 2021 that all investments in its funds had undergone an ESG quality review – but that this was not always the case.
Between January 2019 and March 2021, 67 out of 185 investments made by a mutual fund advised by BNY Mellon Investment Adviser did not have an ESG quality review score at the time of investment.
“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,” SEC Deputy Director Sanjay Wadhwa said in a statement.
The SEC noted BNY Mellon Investment Adviser failed to adopt and implement policies and procedures to prevent the inclusion of untrue statements in prospectuses and other documents, adding that compliance staff were unaware of missing quality reviews until March 2020.
To settle the charges, BNY Mellon Investment Adviser agreed to a cease-and-desist order, a censure and a US$1.5 million civil penalty. The SEC’s order notes that the firm promptly undertook remedial acts and cooperated with SEC staff in its investigation.
The firm has said none of the sustainable funds it offers have been specifically targeted by the SEC, and that it has already updated its fund materials.
The SEC plans to propose new rules this week establishing how financial firms can apply ESG or other green labels to investment funds. The rules are expected to require information about how ESG funds are marketed, how ESG is incorporated into investing and how these funds vote at companies’ annual meetings.