Bank of Ireland says clients unaffected by BNY Mellon funds ‘greenwashing’

Bank of Ireland said that more than €500 million of clients’ money invested in a BNY Mellon fund is unaffected by a “greenwashing” finding against a US version of the fund and five other portfolios that resulted in a groundbreaking fine last week.

The US Securities and Exchange Commission (SEC) imposed a $1.5 million (€1.4 million) penalty on the New York-based group’s investment adviser unit for “misstatements and omissions” about environmental, social and governance (ESG) considerations in the making of investments across six funds.

The SEC said it found that, from July 2018 to September 2021, BNY Mellon Investment Adviser “represented or implied in various statements that all investments in the funds had undergone an ESG quality review, even though that was not always the case”.

The funds at the centre of the regulatory enforcement case include the BNY Mellon Global Real Return Fund. Bank of Ireland entered a distribution agreement with BNY Mellon in 2010 to distribute a euro-denominated version of the global real return fund, where the investment objective is to invest in different asset classes to produce real returns with less volatility than major equity markets over the medium term.

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A spokesman for Bank of Ireland said there was “no read-across” to the euro-domiciled version of the fund distributed by the Irish bank, as it did not carry similar “disclosures or statements” on ESG investment screening. The US enforcement action only related to the US-domiciled funds.

Some €515 million of Bank of Ireland clients’ money is currently invested in the euro-domiciled version of the BNY Mellon Global Real Return Fund. The fund’s top holdings as of the end of April included investments in gold, US government bonds, as well as shares in renewable energy group Greencoat UK Wind, drugmaker AstraZeneca and Microsoft.

Regulators and policymakers globally have pledged to clamp down on companies making exaggerated claims about the sustainability credentials of their products as they try to cash in on booming demand for ESG investing. The BNY Mellon fine is being seen as a something of a watershed moment, as the first case of its kind in the US.

Meanwhile, German prosecutors raided asset manager DWS and the headquarters of its majority owner, Deutsche Bank, on Tuesday amid an ongoing investigation into allegations of investors being misled about green investments. DWS has repeatedly denied claims that it had sold investments as being greener or more sustainable than they were.

Separately, Central Bank of Ireland governor Gabriel Makhlouf said in a speech on Tuesday that his organisation is “closely monitoring” how Irish-domiciled funds are living up to the new EU sustainability disclosure requirements.

“The market for investment products with environmental, social and governance characteristics continues to attract significant investor demand. In the funds sector, this demand is being met through the launching of new investment funds or the ‘converting’ of existing funds to take into account such characteristics,” he said.

“The popularity of these products, the incentive for them to be marketed as ‘greener’ than they may be in practice and the early stage of the disclosure regime in this area all give rise to significant potential for greenwashing and for misleading disclosures to investors.”