Environmental, social, and governance (ESG) principles are at the very heart of the U.S. regulatory focus and a changing SEC stance toward how fund managers with ESG strategies are regulated. The U.S. still does not have any mandatory ESG compliance requirements, which has allowed asset managers – along with a variety of other companies and entities – to exploit the lack of a framework to make blanket ESG-friendly claims without follow-through and accountability. Nonetheless, the SEC is beginning to change its approach to regulating fund managers with ESG strategies, and an undeniable trend toward regulatory standards is emerging. In a two-part guest series, Andrew King, partner at ESG Ventures, provides an overview of formal U.S. regulations relating to ESG investing and the voluntary measures the private funds industry has adopted instead. This first article details the status of the U.S. regulatory regime to date, while also attempting to forecast how ESG regulations will change under the Biden administration. The second article
will address how third-party ESG frameworks have filled the void in the industry, how fund managers can properly incorporate them into their efforts and what risks managers should look out for. See our two-part series: “OCIE’s Targeting of ESG Investing Practices in Recent Examinations and What It Means Going Forward
” (Jan. 21, 2020); and “How Fund Managers Can Identify and Mitigate Risks From the SEC’s Increased Focus on ESG Investing
” (Jan. 28, 2020).