How can directors of mutual funds and exchange-traded funds (ETFs) that focus on environmental, social, and governance (ESG) investing prepare for the increased regulatory scrutiny by the U.S. Securities and Exchange Commission (SEC)? The SEC, which is primarily concerned with “greenwashing,” the practice of conveying a false image to investors that a product is ESG-friendly, is focused on registered funds’ disclosures, controls, and policies and procedures.
ESG investing can fall squarely in the fund directors’ primary oversight role. As part of their fiduciary duty to a fund, boards must oversee the fund’s compliance function, proxy voting disclosures, investment performance, and risk management. Fund boards will need to educate themselves on the fund’s ESG-related investments, disclosures, practices, fund performance, written policies and procedures, and stewardship activities.
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