In a recent enforcement action, the U.S. Securities and Exchange Commission (SEC) penalized Invesco Advisers, Inc., accusing the investment management firm of making deceptive claims regarding the percentage of its assets under management (AUM) that incorporated environmental, social, and governance (ESG) factors. This Atlanta-based investment adviser agreed to a $17.5 million civil penalty to settle the SEC’s charges, marking a significant development in the regulatory landscape surrounding ESG disclosures.
Invesco’s Misrepresentation of ESG Integration Across Assets
According to the SEC, from 2020 to 2022, Invesco’s communications and marketing materials claimed that 70% to 94% of its parent company’s assets under management were “ESG integrated.” This assertion, however, did not reflect the actual practices across the firm’s portfolio. A large portion of the reported assets included passive exchange-traded funds (ETFs) that did not, in fact, integrate ESG factors into their investment decisions. This discrepancy led to concerns about the accuracy and integrity of Invesco’s ESG claims.
Lack of Written Policy on ESG Integration at Invesco
Invesco’s assertions about its ESG integration were not only misleading but were also found to lack substantive policy backing. The SEC’s order highlighted that Invesco had no formal written policy defining what constituted “ESG integration.” This absence of clear guidelines contributed to the inconsistency in its claims and raised questions about the reliability of its ESG integration reporting.
SEC’s Response: Emphasizing Transparency and Accountability
Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement, emphasized the need for companies to be transparent with their clients and investors, especially when addressing popular trends like ESG investing. He remarked, “Invesco saw commercial value in claiming that a high percentage of company-wide assets were ESG integrated. But saying it doesn’t make it so.” Wadhwa underscored the importance of maintaining straightforward communication with investors, rather than leveraging trending buzzwords without substantiation.
Invesco’s Violations of the Investment Advisers Act of 1940
The SEC’s order specifically charged Invesco with willfully violating provisions of the Investment Advisers Act of 1940. This federal law mandates ethical standards and accountability for investment advisers, reinforcing the requirement for honest disclosure of material information to investors. By failing to accurately represent its ESG integration practices, Invesco breached this foundational regulatory framework.
Settlement Terms: Cease-and-Desist Order, Censure, and Civil Penalty
Invesco, while not admitting or denying the SEC’s findings, agreed to a series of remedial actions, including a cease-and-desist order from violating specific provisions of the Investment Advisers Act. Additionally, the firm accepted censure and the aforementioned $17.5 million penalty. This settlement serves as a clear warning to the investment management industry about the repercussions of inflating ESG claims without solid evidence or policy foundations.
The attorneys at Sallah Astarita & Cox, LLC are former SEC Staff Attorneys and brokerage firm counsel, with over 100 years of collective experience. If you have received a subpoena from the SEC, a document request from FINRA, or have a dispute with a brokerage firm, call 212-509-6544 for a free consultation. The firm represents investors and financial professionals nationwide.
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