Fund manager WisdomTree Asset Management Inc. didn’t fully screen out fossil fuel and tobacco companies from a trio of ETFs that were marketed as ESG funds, the U.S. Securities and Exchange Commission (SEC) alleges.
The firm consented to the SEC’s order, which found that it violated securities rules by making misstatements to investors, and to the funds’ board, related to the adoption of an ESG investment strategy for three ETFs.
According to the regulator’s order, the firm allegedly misstated that the funds would not invest in companies that were “involved in certain controversial products or activities,” including fossil fuels and tobacco.
“In reality, the ESG funds invested in the securities of companies… that were involved in such activities, including coal mining and the transportation of coal, natural gas extraction and distribution, and the retail sale of tobacco products,” it said.
The alleged misstatements stemmed from the firm purchasing data from an external vendor that only identified a subset of companies involved in fossil fuels, and didn’t exclude retailers that generated less than 10% of their revenues from selling tobacco products.
“WisdomTree did not inform the board or revise the ESG funds’ prospectuses until November 2022 concerning these issues with respect to fossil fuels and tobacco screening,” the SEC alleged.
Additionally, it alleged that the company didn’t adopt written policies designed to prevent similar greenwashing violations.
Eventually, the firm revised the funds’ prospectuses, and this year, it liquidated the funds.
Without admitting or denying the SEC’s findings, WisdomTree agreed to a cease-and-desist order, a censure, and to pay a US$4 million civil penalty.
“At a fundamental level, the federal securities laws enforce a straightforward proposition: investment advisers must do what they say and say what they do,” said Sanjay Wadhwa, acting director of the SEC’s enforcement division, in a release.
“When investment advisers represent that they will follow particular investment criteria, whether that is investing in, or refraining from investing in, companies involved in certain activities, they have to adhere to that criteria and appropriately disclose any limitations or exceptions to such criteria,” he added.