(Bloomberg) — Canada’s biggest securities regulator is taking its first enforcement action related to so-called greenwashing by a fund manager.
The Ontario Securities Commission is alleging Toronto-based Purpose Investments Inc. made statements about how it incorporated environmental, social and governance factors that were “misleading, untrue, and in conflict with the prospectuses of the funds it managed.”
Between September 2019 and March 2023, Purpose implied that it embedded ESG principles across its entire process, the regulator said in a filing Friday. The watchdog is pursuing remedies that may affect the ability of the fund manager and its founder, Som Seif, to operate in Ontario, as well as financial sanctions.
The regulator pointed to at least 19 occasions when Purpose and Seif marketed their ESG credentials during that period, including on Purpose’s website and in media interviews.
“In reality, Purpose did not consider ESG in making investment decisions for many of the funds it managed” and did not have any formal ESG policy, the OSC alleged.
The amount of Purpose’s funds considering ESG were less than 35% of assets under management in 2019, despite it saying the percentage was 75%, the OSC added.
Purpose is contesting the enforcement action. A hearing is scheduled for Oct. 6.
“This is really a misunderstanding about how they interpret what we’ve done from a corporate philosophy around ESG,” Seif said in an interview, adding that the OSC hasn’t alleged investor harm or prospectus violations. Nor is the case based on investor complaints, the firm said in a statement.
In 2023, Purpose updated its disclosures and clarified which of its funds were classified as ESG, after the OSC requested that it do so.
Seif said there was no indication the request would lead to enforcement action.
“Frankly, we’re quite surprised by the OSC’s decision to use their enforcement platform to go after something so minimal,” he said.
ESG investment funds globally have come under pressure to re-label as authorities — notably the European Union — have cracked down on climate disclosures. Fund re-brandings surged fivefold year-over-year in the first quarter as 500 funds with a total $380 billion in assets dropped the ESG label, according to analysts at Bloomberg Intelligence.
“When you’re going after funds that actually say they’re ESG, that’s a totally different story, and I think that makes a lot of sense,” Seif said. “None of our funds had ESG in their title, and none of our funds had ESG in their prospectus objectives or strategy.”
(Updates with comments from Som Seif beginning in the eighth paragraph.)
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