(Article from Registered Funds Regulatory Update, July 2022)
For more information, please visit the Registered Funds Resource Center.
The SEC recently settled charges against BNY Mellon Investment Adviser, Inc. (“BNY Mellon”), a registered investment adviser, for material misstatements and omissions regarding its consideration of ESG principles in making investment decisions for certain mutual funds that it manages. The enforcement action comes after the SEC Division of Enforcement formed a Climate and ESG Task Force in March to analyze disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies.
The Order found that, from July 2018 to September 2021, BNY Mellon allegedly represented or implied in various statements and documents that all investments made by certain of its funds had undergone a proprietary ESG quality review process even though that was not the case. BNY Mellon made such representations to investors via prospectus disclosure and in responses to requests for proposals as well as to the funds’ boards.
The funds involved in the SEC action are not part of BNY Mellon’s suite of sustainable products, which follow certain ESG-related criteria as part of their principal investment strategies. Rather, the funds may incorporate ESG considerations into investment decisions, but do not have a specific mandate to follow ESG principles for any individual investment. BNY Mellon represented that the funds still went through the ESG quality review as part of the investment research process. However, the funds’ sub-adviser made some investment decisions that were not vetted according to that ESG quality review. For example, in one fund, nearly 25% of the fund’s net assets did not have an ESG quality review score as of the time of investment.
Without admitting or denying the findings, BNY Mellon agreed to a cease-and-desist order, a censure and a $1.5 million civil monetary penalty.
In the Matter of BNY Mellon Investment Adviser, Inc., SEC Admin. Proc. File No. 3-20867 (May 23, 2022), available at: https://www.sec.gov/litigation/admin/2022/ia-6032.pdf.