May 15, 2021

Volume XI, Number 135

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SEC Makes Moves to Step Up ESG Enforcement

As investor demand for socially responsible investing continues to rise, the U.S. Securities and Exchange Commission (SEC) has increased its focus on compliance practices of investment advisors and funds. After the change in the presidential administration, it was anticipated that the SEC would again take up environmental, social, and corporate governance (ESG) reporting. While Commissioner Gary Gensler was not confirmed until this week, the Commission has already been positioning itself to act on this issue over the past several months. 

Last month, the Commission launched a new Climate and ESG Task Force likely to drive new initiatives. The Commission also announced the appointment of the first senior policy advisor for climate and ESG matters, Satyam Khanna. There are several topics that may be considered by Mr. Khanna and the Task Force for policy and rule changes, including environmental disclosure rules, diversity disclosures at the board and workforce levels, and political spending disclosures. In the meantime, the Task Force will focus on increasing enforcement of the existing legal framework applicable to ESG investments.

The recent enforcement actions reflect a new emphasis on public messaging. The SEC’s Division of Examinations recently completed a review of ESG investing. The review resulted in a risk alert based on the increasing number of ESG products and services without standardized definitions or industry practices. The Division encouraged investment advisors and funds to carefully evaluate public statements related to ESG investments and to ensure that internal policies and compliance mechanisms were sufficiently implemented to prevent violations of the law. The emphasis on public statements is especially important because the ESG Task Force has already “started working on plans and initiatives to look at potential, materially misleading statements and omissions,” according to Kelly L. Gibson, acting deputy director of the SEC’s enforcement division. Currently, any of those advisors and funds that fall short of the standards suggested by the Division of Examinations are potential targets for the SEC.

Overall, the Biden administration is expected to encourage ESG investing as part of its approach to addressing climate change. The administration has ordered a review of the prior administration’s rules on the issue. Investors and advisors can expect a new legal framework to develop quickly in the coming months and should remain informed of SEC actions and investigations related to this developing area of regulations. 

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© Polsinelli PC, Polsinelli LLP in CaliforniaNational Law Review, Volume XI, Number 110
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Melissa S. Ho Shareholder Phoenix Antitrust, Antitrust - Health Care Compliance, Fraud and Abuse, Stark, Financial and Securities Litigation, Financial Technology, Regulation Government Investigations, Health Care Litigation
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Melissa Ho is a trial attorney with a detailed understanding of government regulations and business litigation. A former prosecutor, she is sympathetic to the disruption and chaos a government inquiry and criminal investigation can cause. 

Melissa defends individual clients against a wide variety of criminal allegations, including health care fraud, qui tam, RICO violations, bank fraud, real estate fraud, mortgage fraud, foreign corrupt practices, securities fraud, water and air quality violations, government corruption, procurement and public fraud, professional misconduct, civil...

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Alexandra G. Brooks Government Investigations Attorney Polsinelli Law Firm
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Working with experienced Polsinelli attorneys in the Government Investigations practice, Alexandra Brooks diligently seeks to find practical solutions to complex matters involving white collar criminal defense and internal investigations. Her practice focuses on helping clients respond to all types of government investigations based on alleged violations of various civil, criminal and administrative laws. Prior to joining the firm, Alexandra practiced as an attorney with a complex litigation firm on both class and mass actions. She also served as a legal intern for a...

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