Last month, I wrote about the SEC’s latest Exam Priorities for investment advisors and companies, broker-dealers, and a few other “market participants.” This includes registered investment companies (RICs), which consists of mutual funds and exchange-traded funds. In that blog, I pointed out that there isn’t explicit mention of ESG, climate, sustainability or DEI in the document’s 16 pages, but those matters are in-scope regardless.
Last week, the SEC issued a Risk Alert for these RIC Exams to “provide some insight regarding the examination process for funds and include an attachment outlining the types of documents and information that are typically requested by examination staff.” This time, ESG was specifically called out as one “example of deficiencies or weaknesses observed by the staff related to funds’ disclosure issues”:
- “Sales literature, including websites, appeared to contain untrue statements or omissions of material fact. For example, funds described as ‘no-load’ charged such fees. Funds also mischaracterized the use of environmental, social, and governance factors in their investment decision-making processes compared to their actual practices.”
The SEC recently took enforcement action against Inspire Investing LLC (including a $300,000 fine) and WisdomTree Asset Management Inc., (with a $4 million fine) for operating in a manner inconsistent with their stated ESG objectives, practices and exclusionary investment screens. I’m betting we’ll be seeing more in the coming months.
Members can learn more about ESG/sustainability enforcement here.
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