WisdomTree's ESG Missteps: A $4 Million SEC Fine

The Securities and Exchange Commission (SEC) has imposed a $4 million fine on WisdomTree Asset Management Inc. for misrepresentations and compliance failures related to its ESG-marketed exchange-traded funds (ETFs). This enforcement action highlights the importance of accurate disclosures and effective screening processes in the growing ESG investment landscape.

From March 2020 until November 2022, WisdomTree represented that its three ESG-marketed ETFs would not invest in companies involved in certain products or activities, including fossil fuels and tobacco. However, the SEC found that these funds invested in companies engaged in coal mining and transportation, natural gas extraction and distribution, and retail sales of tobacco products.

The inclusion of fossil fuel and tobacco companies in the ESG funds can be attributed to the use of third-party data vendors and the lack of adequate screening policies and procedures. The third-party vendors' screening processes failed to exclude all companies involved in fossil fuel and tobacco-related activities. Additionally, WisdomTree did not have any policies and procedures in place to oversee the screening process, allowing these companies to slip through the cracks.


The misrepresentations by WisdomTree had an impact on investors, although it is unclear if any complaints or lawsuits were filed. The three funds in question had a monthly average cumulative AUM of approximately $119 million throughout their lifetime as ESG-named funds. Investors who prioritize ESG factors may have been misled by WisdomTree's representations and could have suffered financial losses as a result.

The SEC's enforcement action sends a strong message to the broader ESG investment landscape and regulatory environment. As ESG investing continues to grow in popularity, investors and regulators alike must ensure that funds adhere to their stated investment criteria and maintain transparent and effective screening processes. This case serves as a reminder that accurate disclosures and robust compliance measures are essential for maintaining investor trust and protecting the integrity of the ESG investment space.


In the future, WisdomTree should take several steps to ensure the effectiveness of its ESG screening process. These include:

1. Implementing rigorous in-house screening processes to complement third-party data vendors.
2. Establishing clear policies and procedures for the screening process to minimize human error and ensure consistency.
3. Regularly reviewing and updating screening criteria to adapt to changes in the market and investor expectations.
4. Enhancing transparency and accountability by disclosing the screening process and criteria in detail to investors.

By taking these steps, WisdomTree can help rebuild investor trust and contribute to the growth of a more responsible and sustainable ESG investment landscape.