In its Report on Activities for Fiscal Year 2020, the Office of the Investor Advocate of the U.S. Securities and Exchange Commission (“SEC”) noted that the Commission’s rulemaking agenda failed to address several modernizations sought by investors such as a “coherent framework for the disclosure of environmental, social and governance (ESG) matters that could influence a company’s long-term performance” despite support for such a standardized disclosure format from the SEC’s Investor Advisory Committee.
The SEC’s Office of Investor Advocate explained that “[i]n our view, the lack of substantive disclosure standards contributes to the practice of greenwashing because general, principles-based disclosures make it difficult to determine whether a company or fund is following its stated objectives. In the absence of specific and comparable disclosures, even experienced investors and large financial institutions may struggle to discern meaningful differences in the practices of companies and funds.” See https://www.sec.gov/advocate/reportspubs/annual-reports/sec-investor-advocate-report-on-activities-2020.pdf at page 9.
As a result, the SEC’s Office of the Investor Advocate came out in support of the creation of a special ESG advisory committee and internal SEC task force to make recommendations to the Commission. “We believe this is a sensible course because the move toward a comprehensive ESG disclosure framework will be a challenging project involving numerous complex issues.”
In light of the fact that Commissioners Lee and Crenshaw have also proposed the creation of the special ESG advisory committee, RIA Compliance Consultants anticipates that this will be on the agenda of the SEC once the permanent SEC Chair has been appointed.
Additionally, RCC suspects that the SEC will carefully review ESG investing during examinations of investment adviser firm in 2021. If your investment adviser firm is recommending or selecting investments based upon ESG criteria, RIA Compliance Consultants has prepared ESG Investing – Best Compliance Practices Checklist which is available to our Annual Compliance Program Clients in the Platinum Package or for purchase on an a la carte basis at https://www.ria-compliance-consultants.com/product/esg-investing-best-compliance-practices-checklist/ .
