SEC Finds Some Funds That Say They’re Green Really Aren’t

U.S. regulators have some bad news for investors who are trying to do good things with their money: that ESG fund might not really be all that green or socially conscious.

There’s a high risk that some money managers are promoting their funds as so-called environmental, social and governance products when the reality is quite different, according to a report released Friday by the Securities and Exchange Commission’s examinations unit. Certain mis-characterizations were so bad that the agency signaled firms could be violating securities laws.

Among the worst findings: Some funds had major compliance gaps, and they lacked formal procedures to ensure that investments billed as ESG are meeting standards. The SEC’s warning comes as a more and more firms are racing to label their investments as sustainable to attract dollars. The boom is likely to expand with the Biden administration making tackling climate change a top priority.

“Investment advisers and funds have expanded their various approaches to ESG investing and increased the number of product offerings,” the SEC’s examinations unit said. “This rapid growth in demand, increasing number of ESG products and services, and lack of standardized and precise ESG definitions present certain risks.”

Although the SEC report doesn’t name any firms, violations discovered by staff during inspections can trigger investigations that lead to sanctions. The agency made clear that it would continue scrutinizing questionable ESG labeling, putting firms on notice.

©2021 Bloomberg L.P.

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