The SEC is Scrutinizing ESG Funds

SEC, ESG, regulation, 401k
They want to know the how and why.

ESG is one of the 10 most-searched financial terms of 2019, and people are allocating more money to environmental, social and governance (ESG) products and strategies overall.

While debate still rages about ESG effectiveness, and whether returns must be sacrificed in order to live one’s values, an overwhelming majority of investors now expect companies to implement ESG practices, according to a recent Edelman survey.

Its increasing popularity now has the attention of the Securities and Exchange Commission, which is taking a hard look at the sector and sending examination letters to a number of firms.

“The SEC initiative is based out of the agency’s Los Angeles office,” The Wall Street Journal reports, citing a person familiar with the matter. “It has focused on advisers’ criteria for determining an investment to be socially responsible and their methodology for applying those criteria and making investments.”

Letters sent

One letter from the SEC to an investment manager with ESG offerings asked for a list of the stocks it recommended to clients, its models for judging which companies are environmentally or socially responsible, and its best- and worst-performing ESG investments, the paper adds.

“It follows a similar examination letter sent last year to other asset managers, suggesting the regulator decided to broaden its examination. It couldn’t be determined which specific firms or how many received letters by the SEC. The SEC declined to comment.”

The Edelman research found 84% of investors agree maximizing shareholder returns can no longer be the primary goal of the corporation, preferring a multi-stakeholder approach. Further, 71% of investors believe companies that overemphasize shareholder return will be partially responsible for consumer or employee activism and 74% say that companies with employee activism are less attractive investments.

John Sullivan
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With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.

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