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Securities Enforcement and Regulatory / Investment Funds Update

“How to Be ESG” — A Private Fund’s Guide to ESG Compliance

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The U.S. Securities and Exchange Commission (SEC) has recently turned its attention to private fund managers that consider Environmental, Social and Governance (ESG) factors as part of their process for selecting portfolio investments. The SEC’s primary focus is on “greenwashing,” the practice of conveying a false image to investors that a product is ESG-friendly. The SEC’s Division of Examinations (EXAMS) has been examining private fund managers on ESG investment selection and portfolio management processes, use of proprietary and third-party scoring systems, marketing materials, proxy voting procedures, and policies and procedures relating to ESG.

In this article, we discuss the SEC’s recent focus on ESG, including the compliance risks associated with ESG investing, and identify concrete steps fund managers can take to ensure compliance. Those steps include conducting an internal review of ESG-related disclosures against practices, controls, and policies and procedures, and preparing for a possible SEC examination concerning ESG investing. 

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