Recent SEC exams also found compliance programs are not well-designed to guard against inaccurate ESG-related disclosures and marketing materials or prevent violations of SEC regulations, and a lack of controls to match clients' ESG-related investing guidelines, mandates, and restrictions, such as negative screens.
Some firms claimed to have formal processes in place but did not have policies and procedures, did not implement them, or failed to document clear ESG-related investment decisions.
SEC examiners also found proxy voting practices inconsistent with stated approaches or misleading statements on ESG-related proxy proposals.
For example, the staff observed public statements that ESG-related proxy proposals would be independently evaluated internally on a case-by-case basis to maximize value, while internal guidelines generally did not provide for such case-by-case analysis. The staff also noted public claims regarding clients’ ability to vote separately on ESG-related proxy proposals, but clients were never provided such opportunities, and no policies concerning these practices existed.
Advisors should consider how their approach to ESG will affect trading and proxy voting in addition to portfolio management and marketing and ensure disclosure and practices are consistent across the enterprise, Michelle Jacko, Managing Partner and CEO of Jacko Law Group stressed.
The staff will continue to examine firms “to evaluate whether they are accurately disclosing their ESG investing approaches and have adopted and implemented policies, procedures, and practices that accord with their ESG-related disclosures,” the agency said.