When it became public a few weeks ago that the SEC had disbanded its Climate and ESG Task Force, the SEC emphasized that it was not taking its eye off of ESG-related issues. In the latest example of the SEC’s continuing ESG-related monitoring, late last week the ESG announced that it had settled charges against investment adviser Invesco Advisers. The agency alleged that the company had made misleading statements about the percentage of company-wide assets under management that integrated ESG factors in investment decisions. In settling the charges, the company agreed to pay a $17.5 million civil penalty. The SEC’s November 8, 2024, press release about the charges and the settlement can be found here. The SEC’s November 8, 2024, cease-and-desist order in the matter can be found here.

Background

Invesco is an Atlanta, Georgia-based registered investment adviser. It is an NYSE-listed company and has about $746 billion assets under management (AUM). According to the SEC, in fall 2019, Invesco came to believe that incorporating environmental, social, and governance (ESG) considerations into its portfolio management was of “commercial importance.” An internal study by senior ESG team members concluded that at least $370 billion in AUM was at risk of moving to another firm, prompting Invesco to accelerate its “ESG integration” efforts.

Consistent with its effort to market its ESG capabilities, during the period April 2020 through July 2022, Invesco made representations to certain clients and prospective clients about the percentage of firmwide AUM at Invesco that was “ESG integrated.” ESG also included the percentage of company-wide ESG-integrated AUM in its ESG Investment Stewardship Reports, which described its “ESG integration” as including “ESG considerations as an influence in investment decision making.” The claimed percentage of AUM that the company claimed was ESG integrated varied from 70% to 94% during the period in question.

The SEC’s Charges

The SEC charged that these percentages were misleading because they counted Invesco’s passive ETF’s, which contained a substantial portion of Invesco’s AUM, as ESG integrated. Many of the ETFs, the SEC alleged, could not consider ESG factors in making investment decisions because they were guided by passive strategies that did not follow an ESG-related index.

The SEC also charged that Invesco had no comprehensive set of written policies and procedures concerning how Invesco would determine the percentage of firmwide AUM that was ESG integrated. The SEC alleged that Invesco lacked any written policy defining ESG integration.

In the agreed order, Invesco agreed that it would cease and desist from violating the pertinent provisions of the Investment Advisers Act of 1940 and the relevant rules thereunder. Invesco also agree to pay a $17.5 million civil money penalty. Significantly, as least from my perspective, the SEC’s order also provided that “Invesco is censured.”

Discussion

Neither the SEC’s press release nor its cease-and-desist order uses the word, but this action would appear to be a clear case of so-called “greenwashing” – which according to one definition is “a deceptive marketing tactic where a company or organization misleads the public about its environmental impact.” In its press release, the SEC quoted an agency spokesperson as saying that Invesco saw “commercial value” in “claiming a high percentage of company-wide assets were ESG integrated. But saying it doesn’t make it so.” The spokesperson went on to say that “Companies should be straightforward with their clients and investors rather than seeking to capitalize on investing trends and buzzwords.”

At least during the time frame involved in the SEC’s action, Invesco had concluded that there was marketplace value in a certain kind of virtue-signaling. In order to try to establish and burnish its ESG credentials, and obviously as a way to preserve and even grow its assets under management, Invesco allegedly overstated its case. Overstating ESG credentials for perceived commercial advantage would look to be a prime example of “greenwashing.”

This action underscores the fact that just because the agency has disbanded its Climate and ESG Task Force, the agency is not out of the business of policing ESG-related issues, including with respect to companies’ overstatement of their ESG credentials. Indeed, this action against Invesco comes closely on the heels of the action late last month (discussed here) in which the agency filed settled charges against investment advisor WisdomTree Asset Management. The agency had alleged that WisdomTree had based on alleged misstatements and compliance failures relating to the firm’s execution of its ESG investment strategy.

The size of the penalty Invesco agreed to pay — $17.5 million– is noteworthy. This is a not insubstantial amount (by way of comparison, WisdomTree agreed to pay a $5 million penalty). In addition, as I noted above, the agency censured Invesco, which in my mind is a strong step to take against a publicly traded company. The penalty and the censure together, to me at least, appear intended to send a message that it is both focused on ESG-related representations and taking alleged misrepresentations about ESG seriously.

This action, together with the prior WisdomTree action, clearly show that even though the agency has disbanded the ESG Task Force, it has not taken its eye off ESG-related issues.

All of these observations take on an interesting light in consideration of the outcome of last week’s Presidential election. On the one hand, the alleged misconduct at the heart of these recent actions do involve alleged misrepresentations to consumers, which is of course the kind of thing that is at the heart of the SEC’s mission. Even under a second Trump administration, these fundamental aspects of the agency’s mission are not going to go away. However, you do have to wonder whether in the new administration certain kinds of issues – say, for example, ESG-related issues – might be deemphasized or even passed over in favor of other concerns. One of the many things we can look forward to watching with the advent of the new administration.