On November 22nd 2022, the SEC charged a major investment firm $4 Million dollars in relation to their management of Funds identified as Environmental, Social, and Governance (“ESG”) investments.
This most recent charge shows the importance of establishing, maintaining, and following policies and procedures that adhere to the Investment Process.
What Did The SEC Discover?
- There was a failure to adopt and implement policies and procedures while advising an ESG SMA Strategy and two ESG Mutual Funds.
- The firm failed to have any written policies and procedures related to ESG research in their ESG SMA Strategy from April 2017 to June 2018.
- Once the policies and procedures were established, there was a continued failure to follow them consistently prior to February 2020.
- Policies created after June 2018 were not followed that required employees to provide research via questionnaire about any investments that would be labeled ESG.
- Employees routinely completed the research after securities were already selected, and some used older research previously performed that did not meet the standards set by their new policies and procedures.
Vigilant’s Final Conclusion
As a result of the conduct discovered by the SEC, the major Investment Firm was charged with violation of Section 206(4) of the Advisers Act and Rule 206(4)-7. The Firm agreed to settle the charges and pay $4 Million for the penalty.
This charge results in the continued mission of the SEC for Investor Protection and to make sure investors receive the advisory services from an ESG Investment that they are expected to receive.
As firms continue to address investor demand for Funds and Strategies related to ESG, there should be adequate policies and procedures to be sure that the strategies being advertised and advised on are being properly followed and maintained.
At Vigilant, with our proactive approach to compliance, we are prepared to assist your firm in maintaining up to date and implementable compliance policies and procedures.