SEC Fines WisdomTree $4M for ETF Greenwashing
Three now-defunct ESG ETFs invested in fossil fuel, tobacco, and coal mining.
WisdomTree Asset Management has been fined $4 million by the Securities and Exchange Commission for failing to follow its own investment criteria for three now defunct ETFs that were marketed under the banner of ESG.
The WisdomTree International ESG ETF (RESD), the WisdomTree Emerging Markets ESG ETF (RESE) and the WisdomTree U.S. ESG ETF (RESP), which were liquidated in February of this year, were found to have invested contrary to ESG methodologies stated in their prospectuses.
According to the SEC, from March 2020 until November 2020, New York-based WisdomTree represented in prospectuses for the three ESG-marketed ETFs, and to the board of trustees overseeing the funds, that the funds would not invest in companies involved in certain products or activities, including fossil fuels and tobacco.
SEC Shakes WisdomTree With $4 Million Fine
However, the SEC’s order finds that the ESG-marketed funds invested in companies that were involved in fossil fuels and tobacco, including in coal mining and transportation, natural gas extraction and distribution, and retail sales of tobacco products.
The fine, announced this week, follows an SEC Wells Notice in August, alleging securities law violations related to those three ETFs.
WisdomTree, which manages 79 ETFs that combine for $77 billion, declined to comment for this story, but emailed a statement saying in part that the company “is pleased to resolve this matter.”
“We take our regulatory and compliance responsibilities very seriously, and as the SEC’s order found, we updated the prospectuses of the relevant ETFs in November 2022,” the statement continued.
According to the SEC’s order, WisdomTree used data from third-party vendors that did not screen out all companies involved in fossil fuel and tobacco-related activities. The SEC’s order further finds that WisdomTree did not have any policies and procedures over the screening process to exclude such companies.
Jason Britton, founder of Reflection Asset Management in Mount Pleasant, S.C., expects regulators to continue to uncover such examples of greenwashing across the ESG investing space.
“The fund management world is all using the same three ESG analytics firms when putting products on the marketplace with labels that are completely disconnected to what’s in the fund,” he said. “This kind of SEC action will be the first of many, many more.”
U.K.-based ETFS Capital, the etf.com parent company, is WisdomTree's largest shareholder. The firm, owner of a slate of ETF industry-related companies, holds 10.2% of WisdomTree’s outstanding shares.
That total climbs to 18.3% when combined with its series A preferred stock. ETFS Capital is seeking to add several of its own candidates to the WisdomTree board of directors, citing WisdomTree's "dismal performance."
