Environmental, social and governance (ESG) issues are a top priority for the SEC based on its recent guidance and exam activity. Specifically, the SEC is concerned with violations of the Investment Advisers Act of 1940 (Advisers Act) caused by “greenwashing” – i.e.
, communicating to investors that advisers are taking ESG actions that they are not actually implementing – breaching fiduciary duty obligations under the Advisers Act and Rule 206(4)‑1 thereunder (Marketing Rule). SEC scrutiny can occur in the form of a sliding scale: the more an adviser holds itself out as implementing ESG principles, the more incisive inquiry it will likely receive from the SEC. A fund need not be an “impact” or “green” fund to receive scrutiny, however. Any fund that makes ESG representations will receive attention. As a result, all advisers should evaluate whether they are making any statements about ESG and, if they are, how those disclosures align with their actual practices. In a guest article, Ropes & Gray attorneys Jason E. Brown and Nicole D. Horowitz set forth some of the various angles via which SEC staff may analyze fund managers’ ESG disclosures, compliance efforts and responsibilities by considering recent SEC guidance and examination efforts as to disclosures; investment activities and documentation; and policies and procedures. See “Core Features of the SEC’s Proposed ESG Rules and the Ethos Driving Its Release
” (Jul. 26, 2022).