The US Securities and Exchange Commission has identified ESG as one of its four “new and significant focus areas” for examinations in 2023.
This should not come as a huge surprise to private markets practitioners; the regulator has been scrutinising managers’ ESG claims during its examination processes (and conducting ESG-specific exams) for a while now. In 2022, it became more targeted and sophisticated in its approach, zeroing in things like carbon emissions calculations and industry frameworks.
Here is the wording from the SEC’s 2023 Examination Priorities Report:
“RIAs and registered funds are competing for the rising investor demand for ESG-related investments and strategies that incorporate certain ESG criteria, and, thus are increasingly offering and evaluating investments that employ such strategies and investments. Therefore, the Division will continue its focus on ESG-related advisory services and fund offerings, including whether the funds are operating in the manner set forth in their disclosures. In addition, the Division will assess whether ESG products are appropriately labelled and whether recommendations of such products for retail investors are made in investors’ best interest.”