BNY Mellon Investment Adviser pays $1.5m SEC fine for ‘misstatements and omissions’ on ESG

BNY Mellon Investment Adviser (BNYMIA) has agreed to pay a $1.5 million penalty to the Securities and Exchange Commission to settle charges of “misstatements and omissions” about ESG considerations in making investment decisions for “certain mutual funds that it managed”. 

According to a release published on the SEC’s website, between July 2018 and September 2021, BNYMIA 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 found that “numerous investments held by certain funds did not have an ESG quality review score as of the time of investment”. 

The investigation was conducted by the SEC Division of Enforcement’s asset management unit. In March 2021, the division formed a climate and ESG taskforce to analyse disclosure and compliance issues relating to the ESG strategies of investment advisers and funds.   

Its first confirmed public action came in April, when Vale, one of the world’s largest producers of iron ore, was charged with misleading investors over the safety of its Brumadinho dam over the three years before its collapse killed 270 people. 

Referring to BNYMIA’s case, Sanjay Wadhwa, deputy director of the SEC’s Division of Enforcement and head of its climate and ESG task force, said: “Registered investment advisers and funds are increasingly offering and evaluating investments that employ ESG strategies or incorporate certain ESG criteria, in part to meet investor demand for such strategies and investments.

“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.”

Adam S Aderton, co-chief of the SEC enforcement division’s asset management unit and a member of the taskforce, said: “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 a cease-and-desist order, a censure, and to pay a $1.5 million penalty, the SEC said.

A BNYMIA spokesperson told Responsible Investor: “BNYMIA is pleased to resolve this matter concerning certain statements it made about the ESG review process for six US mutual funds. While none of these funds were part of the BNYMIA ‘sustainable’ fund range, we take our regulatory and compliance responsibilities seriously and have updated our materials as part of our commitment to ensuring our communications to investors are precise and complete.” 

They continued: “We are proud of our heritage and track record in responsible investment and are committed to continuing to be a trusted partner for our clients’ responsible investing needs.”  

On Wednesday, the SEC has scheduled an open meeting where the commissioners at the regulator will vote on two new rulemaking proposals. One proposes amendments to the Investment Company Act in a bid to crack down on misleading names used by investment companies. The other considers standardising ESG disclosures for investment advisers.