SEC subpoenas fund managers over ESG investing
Zachary Halaschak
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Lawyers from the Securities and Exchange Commission have reportedly sent document requests and subpoenaed several asset managers related to ESG marketing.
The SEC’s enforcement division sent the request as it probes possible wrongdoing as it relates to ESG, which is short for environmental, social, and governance investing, the Financial Times reported. The action comes as the SEC has been gearing up to scrutinize the ESG space, which has become increasingly popular in recent years, in particular to ensure that funds that advertise themselves as climate-conscious are not being deceptive.
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The SEC is looking at conventional funds that have recently reconfigured themselves as ESG funds, as well as funds offered in both the United States and Europe that are closely tied but provide different levels of information in each area.
ESG investing has become increasingly widespread. It is a corporate model that doesn’t solely look at maximizing profit but also incorporates other elements into financial decisions — for instance, how an investment might affect fossil fuel emissions.
The ESG movement is closely tied to the idea of transitioning away from shareholder capitalism to “stakeholder capitalism,” which bucks the notion that the sole purpose of a corporation is to serve its shareholders and rather focuses on the company’s value for customers, employees, suppliers, and communities.
But there are concerns that some fund managers might be trying to cash in on the trend without offering the proper level of disclosures or are using ESG investing as a lure for investors.
The SEC’s enforcement division formed a task force shortly after President Joe Biden was sworn into office in 2021 to investigate potential wrongdoing related to ESG disclosures and has since settled cases with asset managers such as Goldman Sachs.
“I wouldn’t be surprised if more enforcement actions come out soon,” Michael Piwowar, an executive vice president at the Milken Institute and a former SEC commissioner, told the Financial Times.
The SEC under Biden has also pushed for more climate-related disclosures from companies. The SEC has been working on a rule to require climate disclosures from companies, although there are recent indications that the rule could be dialed back a bit amid anti-ESG pressure.
The latest barrage of document requests and subpoenas comes as the SEC has been working toward a rule to set requirements for funds that advertise themselves as ESG or green funds. The effort aims to prevent money managers from “greenwashing” investors who prioritize ESG.
Greenwashing is when firms obfuscate the truth about what is in their investment vehicles to reap the benefits of the ESG label without following through.
While ESG has gained much popularity, Republicans have begun hitting back at the movement, which they see as contrary to the core principles of investment.
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Taking corporate focus away from merely providing quality products or services for customers and shareholder value for investors causes consumers to suffer, critics of ESG argue. Republicans see the growing push as an attempt to distort the free market and, in some respects, even culture through capital and influence.
The Washington Examiner reached out to the SEC for comment but didn’t receive a response.