SEC Sanctions Goldman Sachs for Failing to Follow ESG Policies and Procedures

Taking into account environmental, social and governance (ESG) factors in the investment process involves certain unique challenges, including inconsistent terminology, disparate methodologies and insufficient data. Nevertheless, a fundamental compliance rule continues to hold true for advisers that venture into ESG territory: “Say what you do, and do what you say.” Goldman Sachs Asset Management, L.P. (GSAM) recently ran afoul of that dictate on both counts. In a recently settled enforcement proceeding, the SEC claimed that GSAM failed to adopt appropriate policies and procedures for governing certain ESG products. Moreover, after it did adopt ESG policies and procedures, it failed to follow them. “Today’s action reinforces that investment advisers must develop and adhere to their policies and procedures over their investment processes, including ESG research, to ensure investors receive the advisory services they would expect to receive from an ESG investment,” said Andrew Dean, Co-Chief of the Enforcement Division’s Asset Management Unit in the SEC’s press release. This article details the alleged compliance shortcomings and the terms of the settlement. See How the SEC’s Recent ESG Proposals May Impact Private Funds” (Sep. 22, 2022); “A Roadmap to Proposed ESG Disclosures on Form ADV” (Jul. 14, 2022); and “Misleading ESG Claims Can Result in Significant SEC Penalties” (Jun. 16, 2022).

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