ESG and the SEC: Where Are We Now?

Perkins Coie
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Perkins Coie

The first half of 2022 saw significant U.S. Securities and Exchange Commission (SEC) enforcement and rulemaking activity around environmental, social, and governance (ESG) investing. In its regulation of ESG investing, the SEC is primarily concerned with the problem of “greenwashing,” or the exaggeration of a firm’s ESG story to attract sustainability-focused investors.

The intense regulatory and political focus on ESG investing shows no signs of abating as the summer draws to a close. Corporations and asset management industry players devoted significant chunks of the summer preparing comments to the SEC on its public company climate risk, fund names, and fund/adviser ESG disclosure proposals. Republican officials in Florida, Texas, and elsewhere are working to stymie ESG investing with legislative and other tactics. “Anti-woke” funds that seek to, for example, emphasize fossil fuel investments, screen out “companies that support LGBT or abortion legislation or philanthropy,” or otherwise compel “non-ESG” corporate policies and practices are having success in attracting investors. Meanwhile, investors have not given up on ESG investing, with, according to Morningstar, Inc., public pension plans doubling down on their commitments to environmental sustainability and ESG funds continuing to take in billions of dollars in new assets in 2022 while experiencing proportionally smaller outflows than non-ESG strategies.

In this environment it is critical for investment funds and advisers, and the public companies in which they invest, to understand how we got where we are with ESG investing today. In a four-part series first published on our blog, Asset Management ADVocate, we explored the following:

  1. ESG-related initiatives at the SEC from 2019-2021
  2. ESG-related SEC enforcement activity in the asset management industry during 2022
  3. ESG-related rules for funds and advisers proposed by the SEC in May 2022
  4. Suggested factors that mutual fund boards should consider in their oversight of ESG funds and adviser ESG initiatives

Understanding the SEC’s approach to regulation of ESG investing is the key to compliance in this unsettled area.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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