4 problem areas the SEC spotted in ESG-labeled funds

Last week, the SEC’s Division of Examinations issued it’s first real warning shot at investment advisors and funds who may be playing fast and cute with their ESG labeling in the form of this 7-page risk alert.

The key section starts on page 3 in “Part III. Staff Observations,” with problem areas including:

1. Portfolio management practices were inconsistent with disclosures about ESG approaches.
2. Controls were inadequate to maintain, monitor, and update clients’ ESG-related investing guidelines, mandates, and restrictions.
3. Proxy voting may have been inconsistent with advisers’ stated approaches.
4. Compliance personnel had limited knowledge of relevant ESG-investment analyses or oversight over ESG-related disclosures and marketing decisions.

The next section of the alert highlights sound practices that the SEC Staff found. I find that to be a fine idea, highlighting what works so that the industry has good examples to draw upon.

In her statement, Commissioner Peirce continues pushing her view that ESG shouldn’t be perceived as a topic onto itself.