The United States Securities and Exchange Commission (“SEC”) made it abundantly clear this week that it will be focusing (i.e., exams and enforcement actions) on ESG investing by investment advisers firms (“RIAs”).
ESG Investing by RIAs Included in SEC’s 2021 Exam Priorities
On Wednesday, March 3, 2021, the SEC’s Division of Examinations (formerly known as the Office of Compliance, Inspections and Examinations) released the SEC’s 2021 Examination Priorities. In particular, the Division of Examinations explained that “[t]he Division will focus on [ESG] products in these areas that are widely available to investors such as open-end funds and ETFs, as well as those offered to accredited investors such as qualified opportunity funds.” See https://www.sec.gov/files/2021-exam-priorities.pdf at page 28. The SEC noted in the 2021 Exam Priorities that examiners will review the consistency and adequacy of the disclosures that an investment adviser firm registered with the SEC provides to its investment advisory clients regarding ESG strategies, determine whether the investment adviser firm’s processes and practices match its ESG disclosures, review any ESG related advertising for false or misleading statements, and review an investment adviser firm’s proxy voting policies and procedures and votes to assess whether they align with the its ESG investing strategies.
SEC Establishes Enforcement Taskforce Focused on ESG-Related Misconduct
On Thursday, March 4, 2021, the SEC announced that it has created the Climate and ESG Task Force in the Division of Enforcement with 22 staff members, which “…will develop initiatives to proactively identify ESG-related misconduct. The task force will also coordinate the effective use of Division [of Enforcement’s] resources, including through the use of sophisticated data analysis to mine and assess information across registrants, to identify potential violations.” See https://www.sec.gov/news/press-release/2021-42 . The SEC explained that the task force will, among other things, analyze disclosure and compliance issues relating to ESG strategies of investment adviser firms. “In addition, the Climate and ESG Task Force will evaluate and pursue tips, referrals, and whistleblower complaints on ESG-related issues, and provide expertise and insight to teams working on ESG-related matters across the Division.”
Best Practices Checklist for Investment Advisers Utilizing ESG
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/ .
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Posted by Bryan Hill
Labels: Enforcement, ESG, SEC, SEC Inspection
Tagged: ESG
