BNY Mellon Investment Adviser agreed to a cease-and-desist order, a censure, and a $1.5 million penalty to settle charges with the Securities and Exchange Commission for misstatements and omissions about environmental, social, and governance (ESG) considerations in making investment decisions for certain mutual funds it managed.
According to the SEC’s order, from July 2018 to September 2021, “BNY Mellon Investment Adviser represented or implied in various statements that all investments in the funds had undergone an ESG quality review, even though that was not always the case,” the SEC stated. “The order finds that numerous investments held by certain funds did not have an ESG quality review score as of the time of investment.”
“Here, we allege that BNY Mellon Investment Adviser did not always perform the ESG quality review that it disclosed using as part of its investment selection process for certain mutual funds it advised,” Sanjay Wadhwa, Deputy Director of the SEC’s Enforcement Division and head of its Climate and ESG Task Force.
SEC’s Climate Task Force
The Enforcement Division’s Climate and ESG Task Force was formed in March 2021. Its responsibilities include analyzing disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies.
“Investors are increasingly focused on ESG considerations when making investment decisions,” said Adam Aderton, Co-Chief of the SEC Enforcement Division’s Asset Management Unit and an ESG task force member. “As this action illustrates, the Commission will hold investment advisers accountable when they do not accurately describe their incorporation of ESG factors into their investment selection process.”
Without admitting or denying the SEC’s findings, BNY Mellon Investment Adviser agreed to the SEC’s order finding that it violated sections of the Investment Advisers Act and the Investment Company Act.
The SEC in its order credited BNY Mellon Investment Adviser with cooperating with SEC staff in the investigation by providing “detailed factual summaries and made substantive presentations on key topics.” The SEC also said the firm promptly undertook remedial steps, including “modifying relevant processes, policies, and procedures.”
SEC’s ESG Focus
In March, the SEC proposed new rules that would require public companies to say much more about their climate-related initiatives. Until now, most environmental, social, and governance disclosures have been voluntary. The SEC proposal has put internal compliance functions on alert at the prospect of the biggest change in reporting requirements since the Sarbanes-Oxley Act was passed in 2002.
In advance of the likely new rules, companies are now re-examining their preparedness to meet the requirements. If adopted, the new rules will require companies to report on:
- The company’s processes for identifying, assessing, and managing climate-related risks.
- How climate-related risks identified by the company materially impact its financial statements, strategy, business model, and outlook.
- Specifics on the company’s greenhouse gas emissions.
- How the board and management are overseeing and governing climate-related risks.
- Details on the company’s public climate-related targets or goals, including any use of carbon offsets or renewable energy certificates.
The new rules and enforcement actions like the one against BNY Mellon’s investment unit make it clear that the SEC is taking environmental and climate change claims and publicly stated plans on ESG seriously and will hold them accountable for misleading and inaccurate statements. 
Jaclyn Jaeger is a contributing editor at Compliance Chief 360° and a freelance business writer based in Manchester, New Hampshire.