The Division of Examinations’ new ESG risk alert “needs some context,” SEC commissioner Hester Peirce says in a new statement of her own.
For starters, no one should read the alert “as a sign that ESG investment strategies are unique in the eyes of examiners,” Peirce says. “The SEC’s role is not to assess whether any particular strategy is a good one, but to ensure that investors know what they are getting when they choose a particular adviser, fund, strategy, or product.”
The alert’s notes on proxy voting should be “read with the Commission’s two recent proxy voting interpretive releases in mind,” Peirce says. Last summer, Peirce and her fellow Republicans commissioners adopted new rules and supplementary guidance that defined proxy advisors as solicitors and cautioned investment advisers to weigh proxy votes carefully.
“Sometimes, not voting at all may be in the client’s best interest,” Peirce says in her new statement, published April 12. “Voting to reflect the investment adviser’s views when they do not also reflect those of the client would be a violation of the adviser’s fiduciary duty,” she adds.
No ‘new obligations’
Peirce also says she wants to make clear that the new risk alert doesn’t require firms to draw up their own ESG-specific P&Ps. “Neither this risk alert nor other staff documents can impose new obligations on registrants,” she says.
“However, a firm’s disclosures about its personnel should match the reality,” she adds. “Likewise, as is the case with any investment strategy, compliance personnel in an ESG firm should be familiar with the firm’s business so that they can build and operate an effective compliance program for the firm, but they need not be experts in ESG, whatever that may be.”
Finally, Commission examiners won’t be making their own calls about whether investments are truly sustainable or ethical, Peirce says. “The staff’s role is not to second-guess investment decisions through an SEC-created ESG scoring system; rather, it is to understand whether firms are adhering to their own ESG claims,” she says. “The great variety of takes on ESG makes it all the more important that the SEC not attempt to insert its own views in the investment advisory process.”