Invesco Pays $17.5M Fine to Settle SEC Greenwashing Charges

Invesco subsidiary Invesco Advisers Inc. has agreed to pay a $17.5 million fine to settle Securities and Exchange Commission charges that it violated the Investment Advisers Act of 1940 by making misleading statements about the how many of its assets were invested according to environmental, social and governance guidelines.

According to the SEC’s cease-and-desist order, Invesco Advisers told clients and stated in marketing materials between 2020 and 2022 that 70% to 94% of its parent company’s assets under management were “ESG integrated.” However, according to the SEC, those figures included a “substantial amount” of assets held in passive ETFs that did not take ESG factors into consideration in investment decisions. The SEC also stated Invesco did not have a written policy defining ESG integration.

“Invesco saw commercial value in claiming that a high percentage of company-wide assets were ESG integrated. But saying it doesn’t make it so,” Sanjay Wadhwa, acting director of the SEC’s Division of Enforcement, said in a statement. “Companies should be straightforward with their clients and investors rather than seeking to capitalize on investing trends and buzzwords.”

Without admitting or denying the charges, Invesco agreed to the fine, to being censured and to accurately represent its ESG investments in the future.

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“The SEC Order makes no allegations or findings related to disclosures about specific funds or investment strategies,” a company spokesperson said in a statement. “Invesco has not issued public reports of firmwide ESG integration levels since late 2022.”

ESG-related fines like the one assessed against Invesco and other firms, such as last month’s $4 million fine levied against Wisdom Tree Asset Management, could be a thing of the past under the administration of President-elect Donald Trump, according to some industry watchers.

“Donald Trump has always been the pro-business, pro-fossil fuel, and anti-regulation candidate, so it should be no surprise that he has a solidly negative view of ESG and wishes to work against it during his presidency,” think tank Corporate Governance Institute stated. “There should be no doubt that the issue will eventually land on his desk, and he will take decisive action in line with his personal beliefs.”

Law firm Seyfarth Shaw LLP expects a “rollback of climate related regulations at the federal level,” particularly by the SEC and the Environmental Protection Agency. The firm also noted that the SEC’s mandatory climate-related financial risk disclosure rules for public companies “are unlikely to survive a Trump administration.” It noted that, prior to the election, the SEC suspended the Climate Disclosure Rules due to legal challenges.

“Even if the Climate Disclosure Rules survive that litigation, the Trump administration under a new SEC Chair may rescind the rules,” the firm stated, adding that “whoever succeeds SEC Chair Gary Gensler will certainly take a hands-off approach to climate-related financial risk disclosures.”

Greenwashing Among Banks, Financial Services Firms Jumps 70%

Knowledge of ESG, Integration and Greenwashing Remains Low

Tags: and governance ESG, Corporate Governance Institute, Donald Trump, environmental, Fine, Gary Gensler, Greenwashing, Invesco, Investment Advisers Act, Sanjay Wadhwa, SEC, Settlement, Seyfarth Shaw, social

Naomi Fink

Japan is experiencing an awakening, offering attractive long-term valuations amid a changing landscape.

It is tempting to attribute Japan’s resilience to its low-growth, low interest rate environment, while other developed economies, like the U.S., face inflation, job losses, and rising borrowing costs. However, Japan has not been frozen in time during its thirty years of deflationary low growth. The aging demographics that once suppressed demand are now driving labor shortages, pushing more people into the workforce and forcing companies to raise wages. As of June 2024, consumers have regained purchasing power through positive real wage growth, with second-quarter GDP growth largely fueled by rising household consumption and private investment.

These surprises may challenge the notion that Japan is still trapped in deflationary zero-growth dynamic and that the recent upturn is merely a short-term gain driven by a weak yen and undervalued stock market. The Japanese domestic equity market has recovered from steep sell-offs reminiscent of Black Monday, historically marking the decline of Japan’s nominal growth and domestic participation thirty years ago.

Market volatility tends to cluster, which means nervousness may result in new dives and subsequent rebounds. In these swings, however, we foresee an opportunity in three parts which are:

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Semiconductors;
Small to midsize firms;
Domestic-demand related sectors.

Semiconductors. The equity market’s current fixation with U.S. large-cap technology stocks may make this sector the most obvious pick; indeed, it is one that has attracted plenty of capital from overseas investors seeking to deploy their cheap yen in positive-yielding assets. The sector, of course, also experienced an aggressive correction in valuation as the “carry trade” unwound and liquidity was withdrawn from other sectors it had most favored during the current investment cycle. The semiconductor sector also happens to be sensitive to overseas revenues and therefore a stronger yen. We also note that the carry-trade-related sell-off created attractive levels for entry, allowing investors the opportunity to gain exposure to a popular investment sector at better levels, in an environment where natural buyers abound. Large companies are buying back their shares in efforts to increase the attractiveness of their balance sheet to shareholders; meanwhile long-horizon investors are building up their Japanese equity holdings after long being under-weight. The sector, no doubt, remains highly attuned to sentiment over global growth, which is likely to make it prone to future valuation dips (which we hold will create buying opportunities).

Of cyclical sectors, semiconductors are likelier than most to offer structural value given their pivotal role in digital infrastructure not limited to AI, key ingredients to technological solutions likely to help Japanese companies retain – or even expand – their margins amid the structural labor shortage. We continue to draw attention to the causal link between structural labor shortages and investment by firms in labor-intensive sectors, particularly increased capital expenditure in software offerings that also represent increases in the semiconductor sector’s revenues. Also supportive is the strategic priority placed by the government (which has directly put money to work to build facilities in the sector) upon Japan’s digital transformation even in the absence of a broader fiscal-expansion bias.

Small-to-mid cap stocks. Structural reform among Japan’s corporations is making itself apparent in the transformation of many companies’ balance sheets. As the Tokyo Stock Exchange has put pressure on listed firms to disclose medium-term investment plans and find better uses for balance sheet cash (which overall totals in excess of JPY350trn, $2.27 trillion), many companies have increased shareholder payouts (including buybacks, mechanically increasing return on equity) as well as capital investments (designed to secure future cash flow by boosting productivity and competitiveness.)

Meanwhile, although valuations have adjusted most notably higher among large-cap stocks of companies well-recognized by overseas investors, there are plenty of firms that have not yet reaped the valuation benefits of reallocating cash. Indeed, almost half the firms listed on the Tokyo Stock Exchange’s TOPIX Index are priced below book value, which suggests that there are still compelling investment theses in lesser-known, smaller-cap firms that have plans to deploy their cash balances to raise return on equity via equity buy-backs, to prime for buyouts or to improve future productivity via transformative capital investments. That said, a small to mid cap stock with large cash balances is not in itself an investment thesis. Active strategies designed to distinguish firms with transformative medium-term investment plans (whether in physical or human capital) or other uses of return-boosting potential is likely a necessary overlay. Alpha lies in wait for those capable of skillfully selecting such firms.

Rotation to domestic demand. Global investors have shown little enthusiasm for smaller, domestic-demand driven firms in Japan, favoring instead large-cap stocks with global revenues. Many of these smaller firms are net importers, disadvantaged by yen weakness and rising import costs. While domestic sectors have benefitted indirectly from the yen’s decline, their performance still lags behind exporters. Investor skepticism stems from uncertainty over U.S. growth, which could negatively affect large exporters. However, smaller, domestically oriented firms may not share the same fate.

Recent indicators, including rising private demand and real wage growth, suggest a shift is underway. Domestic demand is gaining momentum, driven by skilled labor shortages, rising wages, and increased expectations for future income growth. This shift may prompt households to move away from holding zero-yielding cash deposits and instead favor consumption or investment in positive-yielding assets. The growing uptake of tax-free savings under the “new NISA” individual tax-free investment account supports this trend. While Japan’s stocks may soften with U.S. growth fluctuations, domestic demand offers potential portfolio diversification, insulating against U.S. market cycles. Given the limited diversifiers available against U.S. market risk, Japan’s home market could provide valuable mid-term diversification.

With a shifting economic landscape driven by rising wages, labor shortages, and increasing private consumption, sectors like semiconductors, small-to-mid cap firms, and domestic-demand industries are positioned for well for sustained growth. While global market cycles and external factors will continue to influence Japan’s economy, the evolving dynamics of its domestic market offer a unique chance for portfolio diversification and sustainable returns, making it an attractive option for investors in today’s uncertain environment.

Naomi Fink is Nikko Asset Management’s Chief Global Strategist.

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of ISS STOXX or its affiliates.

Tags: Domestic demand, Japan, Japanese Equities, Naomi Fink, Nikko Asset Management, opinion, semiconductor industry, small-to-mid cap stocks