Insights | 06.09.21
ESG Scrutiny From the SEC's Division of Examinations
Legislative proposals and regulatory attention during the Biden administration suggest that there will be an increase in focus on environmental, social, and governance (ESG) matters by the SEC. For example, the Climate Risk Disclosure Act of 2021 seeks the promulgation of rules requiring public companies to disclose additional information about their greenhouse gas emissions and fossil fuel assets, and how climate change would affect their valuation. The SEC also has released a request for public comment on climate change disclosures. Among the latest developments, the Exam Division has initiated a targeted review of ESG practices. Inquiries into ESG and socially responsible investing terms suggest recognition that a lack of precision could lead to issues with advisor compliance, the SEC's ability to monitor advisors, and confusion among investors. The staff appears to be focused on understanding how registrants use industry standards. The SEC is also looking to assess advisor recommendation of investment changes based on ESG criteria.
Read the full article on Harvard Law School Forum on Corporate Governance.