SEC Fines WisdomTree $4 Million for Alleged Greenwashing Practices

As part of a settlement with the U.S. SEC, WisdomTree Asset Management, a prominent New York-based financial advising firm, agreed to pay a $4 million fine.

The firm allegedly broke its pledge to provide exchange-traded funds (ETFs) that are ecologically benign, according to the SEC.

According to the SEC, the funds did not steer clear of investments in tobacco and fossil fuels. The SEC fined WisdomTree $4 million for alleged “greenwashing.”

What Happened?

WisdomTree promoted three distinct ETFs as adhering to an environmental, social, and governance approach between March 2020 and November 2022. According to their marketing, these funds steer clear of investments in businesses engaged in contentious sectors like tobacco and fossil fuels like coal and natural gas.

The goal of ESG funds is to assist investors in funding businesses that place a high priority on social responsibility and sustainability.

But the SEC’s investigation revealed that those funds were not as environmentally friendly as WisdomTree had stated. The funds invested in businesses that were engaged in transportation, natural gas extraction, coal mining, and even the retail selling of tobacco products.

This tactic, referred to as “greenwashing,” entails deceiving investors into thinking their funds are being allocated to socially conscious endeavors when, in reality, they are being invested in sectors they might wish to stay away from.

Results of the SEC

WisdomTree screened out businesses that didn’t fit ESG standards using data from third-party providers, the SEC discovered. However, not all businesses engaged in operations related to tobacco and fossil fuels were adequately filtered out by these suppliers.

Furthermore, WisdomTree lacked robust internal policies and regulations to guarantee that the screening procedure was appropriately carried out. As a result, false claims on the characteristics of the investments made in these funds were made.

WisdomTree was directed to cease using deceptive marketing techniques by the SEC. WisdomTree was censured for its compliance with a cease-and-desist order.

The business consented to paying a $4 million civil penalty but neither acknowledged nor denied the SEC’s conclusions.

WisdomTree pays $4 million over SEC 'greenwashing' charges https://t.co/RggmfvsKZh pic.twitter.com/x6Zax8bEOA

— Reuters (@Reuters) October 22, 2024

WisdomTree’s Answer

Regarding the SEC’s conclusions, a WisdomTree representative admitted that there were problems with the funds, but clarified that they were minor and had already been liquidated.

“We take very seriously our regulatory and compliance responsibilities,” the company said.

Our track record of successful investments and our openness with investors make us proud.

The company’s dedication to openness with investors and making sure its investment plans complement the ESG guidelines they support was also underlined by WisdomTree.

Why It’s Important

The SEC’s broader campaign to combat “greenwashing” includes this case. Greenwashing is the practice of investment managers or businesses making claims about their environmentally beneficial activities but then not fulfilling them.

SEC News: #SEC charges @WisdomTreeFunds with failing to adhere to its own investment critera for ESG marketed Funds. Wisdomtree did infact invest in fossil fuels and tobacco. There you have it. https://t.co/FYV0GYaUFK pic.twitter.com/H3JRQyueOl

— MartyParty (@martypartymusic) October 21, 2024

With the increasing popularity of ESG investment, the SEC is ensuring that companies who make false claims about environment and ethical behavior are held responsible.

When investors select ESG funds, the SEC wants to make sure they are indeed funding businesses that adhere to the stated criteria. In this instance, WisdomTree’s penalties and enforcement action were the result of their failure to guarantee appropriate screening and compliance.