SEC’s Continued Emphasis on ESG Despite Task Force Dissolution

WASHINGTON, D.C., November 30, 2024 – The Securities and Change Commission (SEC) reaffirmed its commitment to integrate environmental, social and governance considerations (ESG) into regulatory oversight, according to a recent risk alert issued by the Review Division. The alert underlines that ​the GSE remains an area of interest for registered investment firms, despite the solution of some high-profile GSE ​initiatives.

Risk Alert, released on November 4, 2024, describes the priorities for reviewing registered funds, ​including compliance with disclosure obligations and fair ​assessment ​practices. It should be ​noted that it included considerations related to GS as an essential element of regulatory review. This inclusion reflects ESA’s recognition of the growing importance of sustainability in investment strategies and ​its commitment to ensuring transparency ​and accountability ​in GHG applications.

ESA ESG Working Party: A legacy of ​surveillance

In early 2024, the SEC formally dissolved its Task ​Force ​on Climate and GSS, ​which had been established ​in 2021 to identify GSS-related violations. The decision ​was taken in the context of external pressure and challenges ​to the scope ​of ​its enforcement ​authority. ​However, the Agency continues to apply the GSS rules and to maintain enforcement ​measures where GSS disclosures lack accuracy or reliability.

Integration of GSS into broader compliance frameworks

The recent ESA ​guide indicates a ​change in the ​management of the GSS from independent initiatives to ​integration in the broader context of ​compliance. By integrating the EAG’s considerations into its review priorities, the ESA stresses the importance ​of ensuring that claims for sustainable investments are ​accurate and substantiated. This approach ​reflects a broader ​trend in ​financial ​markets where the GSS is increasingly ​seen as ​an essential aspect of ERM.

Impacts on fund managers

For registered ​investment firms, ESA’s approach in the GSS means a more ​in-depth examination of disclosures and marketing materials related to sustainability. Fund managers are ​expected to align their environmentally sound management practices ​with ​their established ​policies and procedures, avoiding misrepresentation. ​This change highlights the ESA’s commitment to protect investors from “green washing”, ​where companies exaggerate or curse their environmental or social impact.

Global context and sustainability reports

ESA’s position is aligned with global movements towards greater transparency ​in sustainability reporting. Internationally, regulators ​apply mandatory GSS disclosure standards, which underpin the need for consistency and comparability of ​sustainability techniques. ESA’s ​actions are part of a broader approach to ​integrating GSS factors into conventional regulatory practices, ​ensuring that stakeholders have access to relevant and reliable information.

In ​conclusion, ESA Risk Alert reaffirms ​its commitment to the ​oversight of the GSS within its regulatory framework. While some initiatives, such as the ​Climate Working Group and the Climate Change Working Group, have been reduced, the Agency continues to emphasize the ​importance of the dissemination of accurate data on the Panel. This continued focus reflects ​the recognition that sustainability is not only a ​trend, but a fundamental aspect of ​modern investment practices and corporate responsibility.