SEC Broadens Probe Into ESG Funds: Report

The Securities and Exchange Commission is querying funds to find out if managers of so-called environmental, social and governance investments are trading away their votes on sustainability issues, Bloomberg News reported yesterday, citing sources familiar with the inquiry. 

Lawyers at the SEC are asking firms offering ESG funds about share-lending practices, and if before corporate elections the shares are brought back in-house, Bloomberg reported. The U.S. regulator wants to know if investors are being properly informed of any such activities, Bloomberg said.  

This latest step expands regulators’ crackdown on exchange-traded funds and mutual funds that market themselves as sustainable. Rising investments in those funds—touted by investing giants including BlackRock Inc.—have sparked regulators’ concerns they are being marketed inaccurately, and their abilities to support the environment and society don’t match their claims. 

Regulators are concerned that shares in such funds are being loaned to short-sellers whose views on ESG issues oppose the firm that lent them, Bloomberg’s report noted.  

The Biden administration has taken a hard look at the ESG industry’s claims, with the SEC looking to tighten regulation of their marketing and suing firms over disclosures. A task force has been put in place and has said funds aren’t doing enough to make sure ESG promises are being kept.  

U.S. Democrats and Republicans have taken differing paths on regulating ESG-marketed funds. Democrats want stricter rules on fund names and standardized disclosures. Republicans in some states have said ESG is dangerous for the economy and a threat to the country’s energy industry.