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SEC fines BNY Mellon over ESG in first case of its kind

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.

The case marks the first time the SEC has settled with an investment adviser concerning ESG statements and comes two days before the agency is set to propose rules establishing how financial firms can apply ESG or other green labels to investment funds. The agency has increasingly been on the hunt for potential greenwashing.

From July 2018 to September 2021, BNY Mellon Investment Adviser suggested in documents that all investments in the funds had undergone an ESG quality review, but that was not always the case, the SEC said. Investments held by certain funds did not have an ESG quality review score as of the time of investment, the SEC said.

“We allege 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,” deputy SEC enforcement director Sanjay Wadhwa said in a statement on Monday.

As of March 31 2022, BNY Mellon Investment Adviser held more than $380bn in assets. The company said none of the sustainable funds that it offered were targeted by the SEC. BNY Mellon has updated its fund materials and said it was pleased to have resolved that matter.

According to the SEC’s order, between January 2019 and March 2021, out of 185 investments made by a mutual fund advised by BNY Mellon Investment Adviser, 67 allegedly lacked an ESG quality review score at the time of investment, which accounted for nearly a quarter of the fund’s net assets as of March 31 2021.

The regulator alleged BNY Mellon Investment Adviser “failed to adopt and implement policies and procedures . . . to prevent the inclusion of untrue statements of fact” in prospectuses and other documents, adding that compliance staff were unaware of missing quality reviews until March 2020.

The case is the latest in a string of SEC enforcement actions concerning ESG after it launched a dedicated greenwashing task force in the agency’s enforcement division last year. In April, the SEC charged Brazilian miner Vale for allegedly misleading investors about the safety of a dam before it collapsed and killed 270 people in January 2019. The SEC also charged Trevor Milton, founder of electric car company Nikola, with misleading statements.

On Wednesday the SEC is scheduled to propose new rules determining what language a mutual fund can use to describe itself as eco-friendly.

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