SEC ESG Enforcement Is Still Alive

Investment Practices Scrutinized Notwithstanding ESG Task Force Dissolution

On November 8, 2024 the SEC announced a settled enforcement action against Invesco Advisers, Inc. for making misleading statements about its integration of environmental, social, and governance (ESG) factors into the firm’s investment decisions. Invesco agreed to pay a $17.5 million civil penalty to settle the matter. This enforcement action makes it clear that, even though the SEC dissolved its ESG Task Force, the Commission continues to monitor firms’ statements and representations for misleading statements about ESG.

According to the SEC’s Order, beginning in 2019, Invesco determined that its clients considered ESG “integration”—the incorporation of ESG considerations into investment decisionmaking—to be very important, and that the firm could lose a substantial amount of assets under management (AUM) if it did not incorporate ESG into its investment practices. Accordingly, Invesco made efforts to integrate ESG factors, including by reportedly using an internal framework to evaluate ESG considerations. As Invesco accelerated these efforts, the firm made various claims to clients and in its marketing materials concerning the firm-wide use of ESG. The SEC alleged that, during the relevant period, Invesco stated that between 70 and 94 percent of the company’s AUM were subject to “ESG Integrated” decisionmaking. The SEC also alleged that Invesco made these statements without disclosing that the AUM figure included assets held by passively-managed exchange-traded funds (ETFs). The Commission alleged that the statements regarding the AUM subject to ESG integrated decisionmaking were therefore misleading because many of these ETFs followed passive investment strategies that did not incorporate any ESG analysis.

This action indicates that even though the SEC dissolved its ESG Task Force, it will not hesitate to bring enforcement actions when it believes there have been ESG-related misstatements. As such, companies should continue to assess their material ESG-related statements for risk, just as they would any other material statements. This action, along with other recent settlements in this subject area, reflect that the Commission’s enforcement agenda is ultimately subject-matter agnostic. That is, whether related to climate or not, a material misstatement is a material misstatement and can lead to SEC enforcement actions.

Crowell & Moring continues to monitor SEC and other enforcement actions regarding alleged ESG-related misstatements. As always, when companies make statements about their efforts to integrate ESG factors into their business decisions, they need to ensure that their claims are carefully crafted and fully substantiated.