Goldman Sachs Asset Management, L.P. has agreed to settle with the Securities and Exchange Commission and pay a $4 million civil money penalty to settle charges that it failed to follow its own environmental, societal and governance (ESG) investment policies and procedures for three of its investment portfolios, the regulator announced Tuesday.

As part of its ESG crackdown, the SEC charged the firm for ongoing policies and procedures failures involving the ESG research it used to select and monitor securities in the Goldman Sachs ESG Emerging Markets Equity Fund, Goldman Sachs International Equity ESG Fund and a US Equity ESG separately managed account strategy, the SEC said.

According to the SEC’s order, from April 2017 until June 2018, the company failed to have any written policies and procedures for ESG research for one product, and once policies and procedures were established, it failed to follow them consistently prior to February 2020. 

While GSAM’s policies and procedures required its personnel to complete a proprietary questionnaire for every company it planned to include in each product’s investment portfolio prior to selection; “personnel completed many of the ESG questionnaires after securities were already selected for inclusion and relied on previous ESG research, which was often conducted in a different manner than what was required in its policies and procedures,” the regulator said in its order.

GSAM also shared information about the policies and procedures “it failed to follow consistently” with third parties, including registered investment advisors, broker-dealers and the funds’ board of trustees, the SEC said.

“Today’s action reinforces that investment advisers must develop and adhere to their policies and procedures over their investment processes, including ESG research, to ensure investors receive the advisory services they would expect to receive from an ESG investment,” Andrew Dean, co-chief of the SEC’s Enforcement Division’s Asset Management Unit, said in a statement.

In its settlement, the firm neither admitted nor denied the SEC’s allegations.

Goldman Sachs Asset Management said in a statement that it “is pleased to have resolved this matter, which addressed historical policies and procedures related to three of the Goldman Sachs Asset Management Fundamental Equity group’s investment portfolios.

“These historical matters did not materially impact the investments’ satisfaction of the ESG criteria contained in those policies and procedures. Goldman Sachs Asset Management is committed to its pursuit of best practices across its portfolios for sustainable, long-term value creation that helps its clients meet their investing needs,” the firm added.

The move comes as the SEC cracks down on firms that brand their funds and strategies with the ESG moniker. In June, Goldman Sachs was targeted in a SEC civil probe over ESG funds.  

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