On November 22, 2022, the U.S. Securities and Exchange Commission SEC charged Goldman Sachs Asset Management, LP (Goldman Sachs) with maintaining inadequate and inaccurate policies governing its ESG investment strategies. According to the SEC, Goldman Sachs will pay a $4 million penalty to settle the charges, which centered on two of the adviser’s mutual funds and one SMA strategy. Goldman Sachs did not admit or deny the Commission’s findings.

The SEC based its order on the following failures by Goldman Sachs, observed over various time periods between April 2017 and February 2020:

• Lack of policies and procedures governing ESG research for one ESG product;
• Failure to consistently follow established policies and procedures for ESG research, including:
  • Conducting ESG due diligence after investments were selected, rather than prior to selection (as required by the Firm’s ESG policy); and
  • Failing to conduct ESG due diligence using methods outlined in the Firm’s policies and procedures.
• Disseminating information on the Firm’s ESG policies and procedures to “third parties, including intermediaries and the funds’ board of trustees,” even when Goldman Sachs was not consistently following these policies.

ESG strategies have long been a focus of the SEC—even making one of the Commission’s five 2022 Exam Priorities. A well-run ESG strategy forwards clients’ values through appropriate policies and procedures, investment selection, and disclosure. Among other things, firms interested in maintaining an ESG strategy should ensure that they have adopted policies and procedures tailored to their ESG strategy before launching ESG products. Firms should also maintain a robust compliance program to help them apply their ESG policies consistently. A strong compliance program includes monitoring and testing ESG strategies and policies over time.

Having policies and procedures governing ESG strategies, and consistently following them, can help your firm comply with federal securities laws. Fairview will continue to monitor SEC announcements, new regulations, and trends in examinations to keep you informed of ESG-related developments that might impact your business.

Fairview provides full-service compliance support for registered investment advisers by creating and implementing comprehensive, sustainable compliance programs, ongoing testing, and evaluations to ensure firms are remaining compliant with SEC regulations. If your firm requires assistance with understanding and implementing SEC regulations, we can help. Contact us today for more information about our services.