The Securities and Exchange Commission has taken several steps to show it’s serious about requiring companies to meet “environmental, social, and governance” (ESG) standards . . . even though there are no such standards and developing them would be a massive and dubiously useful task.
Using its power to require full disclosure of information needed by investors, on May 23 the SEC required an investment subsidiary of the Bank of New York Mellon to pay a $1.5 million fine. The company had claimed that its investments had gone through an ESG quality review, but “numerous” funds had not, said the SEC.
“The SEC’s order finds that, 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 order finds that numerous investments held by certain funds did not have an ESG quality review score as of the time of investment.”
The bank did not affirm or deny the charge, but according to the Wall Street Journal, the bank claimed that “none of the six funds in question were part of its specific sustainable fund offerings.” Nevertheless, BNY Mellon Investment Adviser agreed to do a better job of disclosure.
Almost simultaneously, the SEC proposed two new ESG requirements. One potentially wide-ranging proposal said:
“Funds focused on the consideration of environmental factors generally would be required to disclose the greenhouse gas emissions associated with their portfolio investments. Funds claiming to achieve a specific ESG impact would be required to describe the specific impact(s) they seek to achieve and summarize their progress on achieving those impacts.
The other proposed rule would require funds that claim in their name to have any ESG characteristic to hold at least 80 percent of the fund in investments that fit that claim.
Image of Securities and Exchange Commission headquarters from Creative Commons.