Invesco Advisers will pay $17.5 million to settle SEC charges that it misled investors when it claimed the company invested up to 94% of its assets under management, taking into account environmental, social and governance factors.
According to in a settlement letterthis percentage included Invesco's passive ETFs. However, those strategies (including the Invesco QQQ Trust, the firm's largest ETF that tracked Nasdaq's 100 largest nonfinancial companies) did not track an ESG-linked index.
“Invesco overstated the percentage of AUM that was ESG integrated because the percentage included all ETFs, regardless of whether the ETF pursued an ESG strategy,” the complaint said.
In late 2019, Invesco recognized that using ESG considerations in investment decisions was a “commercial imperative”. This was particularly the case in the European, Middle Eastern and African markets due to changes in Europe's regulatory framework requiring more disclosures related to sustainability. According to the commission, Invesco believed that 30% of its AUM (totaling about $370 billion) could be “at risk” without changes.
As of April 2020, Invesco claimed to have made great strides in ESG integration. In a 2020 presentation, Invesco stated that 87% of the firm's assets had “minimal but systematic” ESG integration, while another 6% were “systematic and fully integrated”. In a June 2020 presentation to an unnamed large US wealth management firm, Invesco claimed to have achieved “90% of AUM by integrating minimal levels of ESG”.
Invesco made similar claims for the next two years, but the commission said those claims were “overstated”. Invesco included all of its passive ETFs in these percentages, regardless of whether those ETFs followed an ESG strategy, and passive ETFs made up about a third of Invesco's total AUM at the time, according to the SEC.
By mid-2021, Invesco employees, including “senior members of the ETFs and Index Strategies group,” took issue with these claims. Prior to this, the group was unaware that Invesco's ESG team had classified all ETFs (including passive ETFs) as ESG integrated. One member wrote in July 2021 that Invesco was not employed in these products “to express an ESG bias.”
“Staff proposed refining Invesco's previously announced goal of having 100% of its AUM ESG integrated so that the goal would pertain only to actively managed strategies or ESG-specific ETFs , but that change was not made,” according to the SEC settlement letter.
While Invesco saw commercial potential in telling investors that a high percentage of the company's assets were ESG-integrated, “saying it doesn't do that,” said acting director of the SEC's Division of Enforcement, Sanjay Wadhwa .
“Companies need to be direct with their customers and investors rather than looking to capitalize on investment trends and buzzwords,” he said.
The commission also criticized Invesco for its poorly written policies and procedures on the subject. In particular, Invesco never adopted a policy defining “ESG integration,” even though it included it in public documents and told clients the amount of the company's assets that were ESG integrated, according to the SEC.
A spokesman for Invesco said the firm was pleased to resolve the matter.
“The SEC order makes no claims or findings regarding disclosures regarding specific funds or investment strategies. Invesco has not issued public reports of firm-wide levels of ESG integration since the end of 2022,” the spokesperson said. “Invesco Advisers, Inc. cooperated fully with the investigation and will continue to take a client-led approach to provide investment strategies tailored to the specific investment objectives of its clients.”
In addition to the $17.5 million fine, Invesco agreed to a censure and a cease and desist without admitting or denying the findings. According to the order, the SEC took into account the firm's cooperation with the investigation when deciding to accept the deal.