Advisory Firm Pays $17.5M Civil Penalty To Settle SEC Charges for Making Misrepresentations Regarding ESG Considerations in Investment Decisions

On Nov. 8, 2024, the Securities and Exchange Commission (SEC) announced that it charged Invesco Advisers, Inc. with making materially misleading statements about the percentage of its assets under management (AUM) that integrated environmental, social and governance (ESG) factors in investment decisions in violation of Sections 206(2) and 206(4) of the Advisers Act and rules promulgated thereunder. To settle the claims, Invesco agreed to pay a $17.5 million civil penalty.

The SEC’s order alleged that from April 2020 to July 2022, Invesco, touting its “[c]ommitment to ESG,” inflated the percentage of firmwide ESG-integrated AUM to certain clients and prospective clients in public-facing and other documents. The SEC found that Invesco claimed that 70% to 94% of its AUM was ESG integrated in client presentations (including to mutual fund boards), request for proposal (RFP) responses and ESG Investment Stewardship Reports published throughout the relevant period. The SEC determined that these percentages were misleading because they included firm assets that were held in passive exchange-traded funds (ETFs) that did not consider ESG factors in making investment decisions. According to the order, Invesco failed to change its stated goal of having 100% of its AUM ESG integrated even though senior members of the ETFs and Index Strategies group at the firm raised concerns about classifying all passive ETFs as ESG integrated.

In addition, the SEC concluded that the firm failed to adopt adequate compliance policies and procedures to ensure the accuracy of its ESG disclosures. Despite frequently using the term “ESG integration” in public documents, Invesco had no formal definition or process for assessing which strategies qualified as ESG integrated.

Takeaways

The charges against Invesco are a continuation of the SEC’s enforcement of greenwashing claims by advisory firms in recent years. In November 2022, the SEC announced that Goldman Sachs Asset Management, LP agreed to pay a $4 million penalty to settle charges that it failed to adopt and implement policies and procedures regarding ESG research that it used to make investment decisions. In September 2023, Deutsche Bank subsidiary DWS Investment Management Americas, Inc. agreed to pay a $4 million penalty to settle SEC charges that it failed to adhere to its advertised controls for considering ESG factors in its investment recommendations for ESG-integrated assets. And last month, the SEC announced that WisdomTree Asset Management, Inc. agreed to pay a $4 million penalty to settle charges that it falsely represented that its ESG-marketed ETFs would not invest in companies that were involved in the fossil fuels or tobacco businesses. The SEC has initiated enforcement actions related to greenwashing claims outside the advisory firm context too. In September, Keurig Dr Pepper Inc. agreed to pay a $1.5 million civil penalty to settle SEC charges that it misrepresented the recyclability of its K-Cup pods.

While the enforcement priorities of a newer administration have yet to be determined, advisory firms should still expect that the SEC will closely scrutinize ESG-related claims. Given such scrutiny, advisory firms making ESG-related claims should adopt and implement written policies and procedures that identify which ESG factors they will consider, how those considerations affect investment decisions and how ESG-integrated investments are classified. Additionally, advisory firms should ensure that their ESG disclosures are based on consistent definitions and supported by accurate data.

Read the SEC’s press release here.