SEC set to examine ESG investing as a priority focus


The US Securities and Exchange Commission (SEC) has revealed that ESG investing will be a key focus in its Division of Examinations in 2023.

According to ESG Today, the division of examinations will guide its monitoring and focused examinations of market participants including investment advisers and investment companies for the year.

ESG issues were previously added to the division’s priority list last year, following a risk alert issued in 2021, underling observations from its examinations that uncovered several potential ESG-related problem areas, including portfolio management practices that did not align with disclosures about ESG approaches.

There was also inconsistencies between ESG-related proxy voting claims and actual practice, and compliance programs that didn’t address adherence to the firms’ stated ESG frameworks, as well as instances of marketing materials that made unsubstantiated or potentially misleading claims regarding the risk and reward characteristics of ESG investing.

SEC noted that the focus on ESG investing comes as investment advisers and funds are competing for the rising investor demand for ESG-related investments and strategies, and are increasingly offering products employing these strategies and investments.

According to SEC, the examinations will focus on ESG-related advisory services and fund offerings, assessing whether the funds are operating as described in their disclosures. The exams will also assess whether ESG products are appropriately labeled – this has emerged as a focus area for the SEC, which released proposed rules last year for ESG fund names and disclosures for funds and advisers that claim to integrate ESG factors into their investment products.

Richard Best – SEC division of examinations director – said, “Our examination program continues moving forward and remains committed to furthering investor protection through high-quality examinations and staying abreast of the latest industry trends and emerging risks to investors and the markets.”

The SEC recently charged Genesis and Gemini for the unregistered offer and sale of securities to retail investors through the Gemini Earn crypto asset lending program.

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