SEC Comments on Emerging ESG Compliance Concerns

WHAT HAPPENED?

In recent months, the Securities and Exchange Commission has increased its focus on socially responsible “environmental, social, and governance” funds, or ESG funds. In 2019, the amount of funds investing in ESGs nearly tripled in comparison to 2018, and there are no signs of the trend slowing down.

Last year, the Commission began sending examination letters to firms that advertise the use of ESG strategies and funds, in part, to determine how the firms are defining and identifying “socially responsible” investments. The Commission’s concerns extend to implications for the proxy voting process and evaluating how advisers decide to vote on ESG issues.

The Office of Compliance Inspections and Examinations’ 2020 Examination Priorities mention a focus on emerging investment strategies like ESG funds, making firms investing in these products potentially more likely to be examined.

WHAT DOES THIS MEAN FOR ME?

If your firm is currently or considering investing in ESG funds or strategies, it is imperative to maintain thorough documentation of the process. The Commission may develop more strict regulations regarding these investments in the coming months or years. As regulatory requirements evolve, Fairview is available to answer questions regarding ESG strategies and products and how your firm may want to address Commission concerns. Contact Fairview with questions about maintaining a fully documented compliance program.

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