Securities and Exchange Commission Alleges That Investment Adviser Failed to Adequately Disclose Esg Investment Policies and Procedures

• Jurisdiction: United States,Federal
• Citation: Vol. 1 No. 2
• Publication year: 2023
• topic: Environmental Law,Securities Law

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Alan R. Friedman, Andrew Otis, Steven S. Sparling, Arielle Warshall Katz, Daniel M. Ketani, and David Richards ^*

In this article, the authors discuss an enforcement action brought recently by the Securities and Exchange Commission that highlights the agency's growing interest in environmental, social, and governance-related disclosures and alleged "greenwashing" by asset managers.

The Securities and Exchange Commission (SEC) has charged an investment adviser subsidiary of a major U.S. financial institution with violations of Section 206(4) of the Investment Advisers Act of 1940 (Advisers Act) and Rule 206(4)-7 thereunder relating to environmental, social, and governance (ESG) investments. The SEC alleged that the adviser's statements labeling certain investments as having been screened pursuant to its policies and procedures for ESG criteria were inaccurate because the policies and procedures the adviser used in selecting ESG-related investments were either nonexistent or ignored by employees. The adviser agreed to pay a $4 million penalty, to enter into a cease-and-desist order, and censure to resolve the charges.

This enforcement action, which follows similar recent actions by the SEC, highlights the SEC's growing interest in ESG-related disclosures and alleged "greenwashing" by asset managers. The SEC's focus on ESG disclosures underscores the need for issuers that market ESG products to accurately disclose their written policies and procedures when making investment decisions. Issuers should also be aware of the SEC's proposed rule regarding the naming,

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investment content and disclosure requirements for ESG-related funds.

The SEC's Enforcement of ESG Disclosures

ESG investing integrates ESG factors into investment decisions. To meet growing demand among...