SEC Broadens Probe Into ESG Funds: Report

Latest report says the agency is examining whether ESG funds are improperly trading away voting rights.

RonDay
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Managing Editor
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Reviewed by: Ron Day
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Edited by: Ron Day

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 fundstouted 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.  

Ron Day is Managing Editor at etf.com. He joined the company in October 2022 and previously served as editor and deputy managing editor.

Ron covered business and financial news at Bloomberg News for 20 years, working on the breaking news, technology, commodities, headlines and First Word teams. He was previously senior editor at ESG news outlet Karma Impact and filled the same role at Boundless Impact. He also covered a variety of beats at New Jersey daily papers including the Daily Record in Parsippany, the North Jersey Herald & News and the Asbury Park Press. Ron's freelance work has been published in AARP.com, Investopedia.com and BigThink.com.

Ron is an advocate and fan of literacy. He hopes to one day master his Telecaster, rather than the other way around. His wonderful family includes a 10-lb. malti-poo named Emmy.