The US Securities and Exchange Commission (SEC) has charged Invesco Advisers a $17.5m civil penalty for misleading claims about its ESG-related investments, according to a published statement.
The SEC found that, by the fall of 2019, Invesco believed incorporating ESG considerations into its portfolio management activities globally “was of commercial importance”, with an internal analysis indicating that, company-wide, at least $370bn in AUM were “at risk” of clients moving the assets to another firm. According to the SEC, this prompted Invesco to “accelerate its ESG integration efforts”.
Subsequently, between April 2020 and July 2022, Invesco “made misleading statements” concerning the company-wide percentage of assets under management (AUM) that were ‘ESG integrated’ – a term that Invesco used to indicate the incorporation of environmental, social, and governance considerations into investment decision-making processes.
The claimed percentage of ESG-integrated AUM varied from 70% to 94% during this time and covered much of Invesco’s passive ETF range, many of which did not follow an ESG-related index and therefore could not consider ESG factors in making investment decisions. This included Invesco’s largest ETF, the Invesco QQQ
Trust – an index product designed to track the 100 largest non-financial companies traded on the Nasdaq exchange.
This issue was flagged by certain Invesco employees, including senior members of the ETFs and Index Strategies group, with the proposal to refine the goal of having 100% of its AUM ESG integrated so that this would only pertain to actively managed strategies or ESG-specific ETFs, but that change was not made.
Further, the SEC found Invesco “did not have written policies and procedures governing what should be considered ESG integrated”, resulting in its approach changing throughout the relevant period.
In one example, the SEC noted Invesco’s representations regarding the percentage of its AUM that was ESG-integrated were based on one employee’s ‘heatmap’, which assessed various investment teams’ ESG-related practices. Based on the investment teams’ responses to a set of questions, discussions with the investment teams, and the employee’s understanding of the teams’ practices, the employee then categorised all of the AUM managed by that team as ESG-integrated or not ESG-integrated, without conducting any strategy-by-strategy analysis as to whether the investment team used ESG factors in its investment decision-making.
Integrum ESG’s head of research, Hannah Bennett, noted the SEC’s investigation and ruling follows a broader trend of regulatory crackdowns as authorities push back against greenwashing in response to rising concerns over the integrity of ESG claims.
Invesco commented: “We are pleased to resolve this matter related to historical statements made about the percentage of firmwide assets under management that were ESG-integrated.
“The SEC Order makes no allegations or findings related to disclosures about specific funds or investment strategies. Invesco has not issued public reports of firmwide ESG integration levels since late 2022.
“Invesco Advisers cooperated fully with the investigation and will continue to take a client-led approach of offering investment strategies tailored to the specific investment objectives of its clients.”
