(Article from Registered Funds Regulatory Update, January 2025)
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The SEC recently charged Invesco Advisers, Inc., a registered investment adviser, for misleading statements about company-wide assets under management made by it and its affiliates that incorporated ESG-related factors into their investment processes. The Order found that these misleading statements were included in presentations provided to the boards of directors of the funds it advised, prospective client proposals, and marketing materials. Specifically, between 2020 to 2022, Invesco cited “ESG integration” estimates ranging from 75% to 94%. However, those estimates were overstated because Invesco included “a substantial amount of assets” of passive ETFs that did not follow an ESG index and, therefore, “did not consider ESG factors in making investment decisions.” In fact, passive ETFs represented approximately one-third of the assets under management reported.
In 2019, ESG team members at Invesco conducted an internal analysis indicating that clients representing “at least $370 billion” in assets under management were “at risk” of leaving. Thus, Invesco believed that integrating ESG considerations globally into its investment processes “was of commercial importance,” causing it to expedite its ESG-integration efforts. Despite this, Invesco failed to define “ESG integration,” a term it coined, in its policies and procedures even though that term was used in public facing documents, or otherwise ensure that firm-wide assets under management were appropriately classified as ESG integrated assets. As a result, Invesco’s method of categorizing assets under management did not evaluate assets under management at the strategy level at all, despite statements that its investment strategies were ESG integrated. Furthermore, certain senior members of the ETFs and Index Strategies group pointed out that the classification of passive ETFs as ESG integrated was problematic, yet no changes were made.
Accordingly, the SEC charged Invesco with, among other things, willfully violating the anti-fraud provisions of the Advisers Act and for distributing misleading advertisements in violation of the Advisers Act. Without admitting or denying the findings set forth in the Order, Invesco consented to a cease-and-desist order, censure, and $17.5 million civil monetary penalty.
In the Matter of Invesco Advisers Inc., SEC Admin. File No. 6770 (Nov. 8, 2024), available at https://www.sec.gov/files/litigation/admin/2024/ia-6770.pdf.