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ESG Risk Alert: Why the SEC Distinguishes ESG From Other Strategies and How to Prepare for a Potential Exam

Private Equity Law Report

08 Jun 2021

Kelley Howes spoke to Private Equity Law Report about the Securities and Exchange Commission’s (SEC) Division of Examinations ESG-focused risk alert detailing practices inconsistent with disclosures, inadequate policies and procedures, and ineffective compliance programs, among other things.

Part of the struggle with ESG being such a broad and undefined area is that ESG investing can involve different markets, like carbon-credit futures, Kelley said. “It isn’t like buying equity. It can take some time to understand how to navigate new markets.”

She added that the lack of a universal definition of ESG can also be advantageous, however, as an adviser can describe what it means by ESG and how it plans to approach ESG investing. “If it does that well, it should not be a surprise that regulators will ask the adviser to show that its investments comport with its disclosed approach.”

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