ESG Risk Alert: Inadequate Controls, Policies and Procedures Concern SEC About ESG Practices Inconsistent with Disclosures

Kelley Howes spoke to Private Equity Law Report about the Securities and Exchange Commission’s (SEC) Division of Examination's ESG-focused risk alert detailing deficiencies and effective practices observed during examinations, among other things.

One possible reason why the SEC observed discrepancies between practice and disclosure is that disclosures did not keep up with changes in portfolio management. For instance, managers tend to focus on keeping client-facing documents updated and accurate, but they may forget to do the same for regulatory documents, according to Kelley. “One of the challenges of keeping Form ADV updated is that it is generally updated once a year.”

“The compliance team needs to be aware of when the firm’s regulatory and investor documents diverge and when an off-cycle amendment to Form ADV is needed,” Kelley added.

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