BNY Mellon Investment Adviser Pays a $1.5 Million Penalty to Settle with SEC over ESG Infraction

Fazzaco learned that BNY Mellon Investment Adviser, Inc. has agreed to pay a $1.5 million penalty to settle with the U.S. Securities and Exchange Commission (SEC) which accused the company of misstatements and omissions about Environmental, Social, and Governance (ESG) considerations when investing with certain mutual funds it managed.

The SEC's official filing alleged that BNY Mellon Investment Adviser made various statements between July 2018 to September 2021, representing or implying that all of its funds' investments had undergone an ESG quality review, when in fact that was not always a 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.

Following the investigation, the regulator determined that BNY Mellon Investment Adviser violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rules 206(4)-7 and 206(4)-8, and Section 34(b) of the Investment Company Act. 

"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," said Sanjay Wadhwa, Deputy Director of the SEC's Division of Enforcement and head of its Climate and ESG Task Force. "Here, our order finds 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."

BNY Mellon set out its ESG goals in early 2016, and has continuously expanded the scope of its ESG strategy to permeate across businesses. Last month, BNY Mellon reached a multi-faceted data and digital collaboration with Aon, a data analytics provider, that would leverage their data and analytics capabilities to support the ESG needs of clients.