SEC already holding ESG-focused examinations

And other anecdotes and takeaways from the CFOs & COOs Forum West, held in San Francisco on 14 and 15 September.

The Securities and Exchange Commission has conducted examinations of managers focused solely on their ESG policies and procedures, according to one person with knowledge of an exam who spoke with affiliate title Private Funds CFO on the sidelines of the CFOs & COOs Forum West in San Francisco earlier this month.

It shouldn’t come as too much of a surprise to compliance officers, although the idea of an examination entirely focused on ESG may be unexpected. The SEC has put ESG at the top of its list of regulatory goals under chairman Gary Gensler. This year, the commission expanded on its ESG-related 2021 examination priorities, looking to evaluate “regulatory filings, websites, reports to sponsors of global ESG frameworks, client presentations and responses to due diligence questionnaires, requests for proposals and client/investor-facing documents, including marketing materials”, according to law firm Akin Gump.

“Firms should be aware that the staff will compare actual due diligence practices (eg, investment selection and monitoring processes) and proxy voting decision-making processes against disclosed ESG investing approaches,” the law firm wrote in a memo.

And among the commission’s recent ream of proposals are rules aimed at increasing the transparency of ESG investments and to codify certain policies and procedures around them. The commission is wary that the vagueness of the term makes the sector subject to ‘greenwashing,’ or marketing an investment as ESG without much substance behind it.

The commission hasn’t finalised its proposals on the matter of ESG reporting. While there is no official finalisation date, the SEC is generally expected to issue final rules by the end of 2022.

The SEC did not respond to requests for comment.