SEC Guidance on ESG: The Impact on Compliance and Due Diligence


The SEC Division of Examinations recently issued the Risk Alert The Division of Examinations’ Review of ESG Investing to provide observations from recent exams of investment advisers, registered investment companies, and private funds offering Environmental, Social, and Governance (ESG) products and services. 

 The Risk Alert notes that “In response to investor demand, investment advisers and funds have expanded their various approaches to ESG investing and increased the number of product offerings across multiple asset classes. This rapid growth in demand, increasing number of ESG products and services, and lack of standardized and precise ESG definitions present certain risks.”

SEC staff will continue to examine firms to evaluate whether they are accurately disclosing their ESG investing approaches and have adopted and implemented policies, procedures, and practices that accord with their ESG-related disclosures, focusing on Portfolio management, Performance advertising and marketing and Compliance Programs.

A Statement from Commissioner Hester M. Peirce provides additional context to go along with the Risk Alert and clarifies that the “SEC’s role is not to assess whether any particular strategy is a good one, but to ensure that investors know what they are getting when they choose a particular adviser, fund, strategy, or product.”

“Another question raised by the risk alert is do firms need a special set of policies and procedures for ESG? The answer to this question is no. Firms need not have a separate set of policies and procedures for any investment strategy. Rather, firms’ policies and procedures should be designed around the investment strategies the firm employs, whatever those strategies are.”

The SEC also recently formed the Climate and ESG Task Force in the Division of Enforcement, with the goal of developing initiatives to proactively identify ESG-related misconduct, including material gaps or misstatements in disclosure of climate risks under existing rules, and analyzing disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies.

What does this mean for Compliance?

Join us for an on-demand webinar offering practical tips on the Impact of SEC Guidance on ESG on Your Compliance and Due Diligence Programs.

During the webinar SEC Guidance on ESG: The Impact on Your Compliance and Due Diligence Programs Hope L. Newsome, Esq., Managing Partner at Virtus LLP and Dana Pointer, Chief Compliance Officer at Preserver Partners provide an overview of how ESG is impacting Compliance right now and how firms can better conduct third party due diligence to understand a company’s approach to ESG, including:

  • An overview of the core principles of ESG
  • Recent SEC guidance and Risk Alerts on ESG
  • Practical tips on conducting ESG Third Party Due Diligence

Watch Now!

Do you have a scheduling conflict? Register and we’ll send you the link to the recorded session. 

 MCO’s Know Your Third Party solution helps firms oversee due diligence activities associated with third party relationships including vendors, customers, counterparties, agents and partners. KYTP enables organizations to automate their initial and ongoing data capture and due diligence activities as part of a third-party oversight compliance program, including:

  • Third party on-boarding activities
  • Initial and ongoing third-party data management
  • Ongoing third-party due diligence
  • Anti-bribery / Anti-corruption program

Ready to learn more? Let us know and one of our experts will be in touch.