The SEC Sets Its Sights on ESG

So where does this leave us? The SEC is closely watching the rapid growth of ESG strategies and investments. The commission is concerned that market demand for ESG products has created a financial incentive for asset managers to identify products as ESG, even when the definition is not entirely fitting. The SEC is also concerned about investment advisers implementing ESG strategies for client accounts without full disclosure and approval, potentially in violation of advisers’ fiduciary duty.


Taking this all together, asset managers and financial advisers would be well-served to confirm that they have a good justification for labeling a strategy as ESG. Likewise, they should have a good reason to implement ESG products or strategies for particular client accounts—namely, the client has requested such a product or strategy, or approved it following full disclosure of its risk and return profile by the adviser. By taking these steps while staying conscious of the SEC’s new ESG focus, asset managers and advisers may keep themselves out of the regulatory crosshairs.

Source: The SEC Sets Its Sights on ESG