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Rating:SEC Smites a $1.5T-AUM Titan Over a $238MM-AUM ESG Trio Not Rated 0.0 Email Routing List Email & Route  Print Print
Wednesday, November 23, 2022

SEC Smites a $1.5T-AUM Titan Over a $238MM-AUM ESG Trio

Reported by Neil Anderson, Managing Editor

Federal regulators are smiting a publicly traded multinational's $1.5-trillion-AUM (as of April 7) asset management arm, accusing the fund firm of not living up to the ESG standards it touted by not following its own ESG process for three offerings (including two mutual funds and a separately managed account strategy).

Yesterday, Sanjay Wadhwa, deputy director of the division of enforcement at the U.S. Securities and Exchange Commission (SEC) and head of the division's climate and ESG task force (which was created in March 2021), and Andrew Dean, co-chief of the enforcement division's asset management unit, publicly unveiled charges against Goldman Sachs Asset Management, L.P. [profile] over GSAM's handling of GSAM's ESG SMA Strategy, the GS International Equity ESG Fund, and the GS ESG Emerging Markets Fund. According to the SEC folks, the GSAM team failed to consistently follow their own written ESG research policies and procedures prior to February 2020 (for example, by completing ESG questionnaires on investments after selecting them, not before), despite sharing those written policies and procedures with intermediaries and the funds' own boards of trustees.

GSAM consented to the entry of the SEC's eight-page order on the matter and agreed to a cease-and-desist order, censure, and a civil money penalty of $4 million. GSAM did so "without admitting or denying the SEC's findings," as is often the case in enforcement actions.

"In response to investor demand, [asset managers] like Goldman Sachs Asset Management are increasingly branding and marketing their funds and strategies as 'ESG,'" Wadhwa states. "When they do, they must establish reasonable policies and procedures governing how the ESG factors will be evaluated as part of the investment process, and then follow those policies and procedures, to avoid providing investors with information about these products that differs from their practices."

"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," Dean states.

"Goldman Sachs Asset Management, L.P. is pleased to have resolved this matter, which addressed historical policies and procedures related to the Goldman Sachs Asset Management Fundamental Equity group's investment portfolios," the GSAM team writes in a statement about the SEC's order. "These historical matters did not materially impact the investments' satisfaction of the ESG criteria contained in those policies and procedures ... Goldman Sachs is committed to its pursuit of best practices across its portfolio for sustainable, long-term value creation that helps its clients meet their investing needs."

The GSAM ESG SMA Strategy (fka GSAM's US Responsible Equity Strategy) had about $103 million in AUM as of February 1, 2020. The GS International ESG Fund (converted from the old Goldman Sachs Focused International Equity Fund) had $127 million in AUM on February 1, 2020, and has since grown to $571.8 million as of October 31, 2022. And the GS ESG Emerging Markets Equity Fund (aka the GS EM ESG Fund) had $8 million in AUM on February 1, 2020; it has since grown to $27.1 million as of October 31, 2022. 

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