Following-up on the extensive new mandatory climate disclosures the SEC issued last week, the SEC has now announced that "ESG" will be the second enforcement priority of its examination division during 2022. Specifically, the SEC will "focus on . . . whether RIAs and registered funds are accurately disclosing their ESG investing approaches . . . [and] whether the vot[ing of client securities] align[s] with their ESG-related disclosures and mandates, and whether there are misrepresentations of the ESG factors considered or incorporated into portfolio section." In other words, the SEC is intent on making sure that firms that state they are abiding by ESG principles are living up to their promises.
This announcement builds upon earlier actions by the SEC to enforce adherence to stated ESG principles. For example, there have been reports of SEC enforcement activity where companies may have acted in ways inconsistent with their ESG disclosures. (https://insights.mintz.com/post/102hgbo/reports-of-sec-enforcement-activity-concerning-esg-disclosures) Further, one of the key enforcement activities of the SEC--across time and political administrations--is ensuring accuracy in disclosures. As ESG disclosures are still in the process of developing, it is logical that the SEC is devoting additional enforcement resources to ensure that the content and accuracy of these disclosures aligns with the SEC's expectations and with market needs.
Ultimately, this announcement by the examination division with respect to enforcement priorities highlights the fact that ESG issues, whether in the form of disclosures or socially-responsible investing, remains at the forefront of the SEC's current activities. Regulated entities should bear that reality in mind when engaging on ESG issues.
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