SEC already holding ESG-focused examinations – CFOs & COOs West

And other anecdotes and takeaways from the CFOs & COOs Forum West, held in San Francisco on September 14 and 15.

The Securities and Exchange Commission has conducted examinations of managers focused solely on their ESG policies and procedures, according to one person with knowledge of an exam who spoke with Private Funds CFO on the sidelines of the CFOs & COOs Forum West in San Francisco on September 14 and 15.

It shouldn’t come as too much of a surprise to compliance officers, though the idea of an examination entirely focused on ESG may be unexpected. The SEC has put ESG at the top of its list of regulatory goals under chairman Gary Gensler. This year, the commission expanded on its ESG-related 2021 examination priorities, looking to evaluate “regulatory filings, websites, reports to sponsors of global ESG frameworks, client presentations and responses to due diligence questionnaires, requests for proposals and client/investor-facing documents, including marketing materials,” according to law firm Akin Gump.

“Firms should be aware that the staff will compare actual due diligence practices (eg, investment selection and monitoring processes) and proxy voting decision-making processes against disclosed ESG investing approaches,” the law firm wrote in a memo.

And among the commission’s recent ream of proposals are rules aimed at increasing the transparency of ESG investments and to codify certain policies and procedures around them. The commission is wary that the vagueness of the term makes the sector subject to ‘greenwashing,’ or marketing an investment as ESG without much substance behind it.

The commission hasn’t finalized its proposals on the matter of ESG reporting. While there is no official finalization date, the SEC is generally expected to issue final rules by the end of 2022.

The SEC did not respond to requests for comment.

Phony phone call?

Cybersecurity is a confusing topic. But one panelist at the Forum became momentarily paralyzed with confusion when he got a phone call from the SEC telling him to send files to them as part of an examination. “Yeah right,” was the panelists’ initial response to himself when first told it was the SEC calling. One of the most well-known tricks in the scammer book is calling pretending to be an authority – the IRS, for example – and demanding money or sensitive information from the person on the other end of the phone. “But wait,” the panelist asked himself, “what if it’s really the SEC?”

Given the SEC doesn’t list contact information for its agents on its website, verifying the caller’s authenticity would be difficult.

In the end, it was indeed the SEC. But this instance is a reminder of the extreme caution employees must take when being asked for money transfers or sensitive information. After all, it’s not unimaginable that the SEC may make these sorts of calls just to be sure you’re following your own cybersecurity protocols!

Branding your LP communications

With fundraising getting only more competitive, and LPs expecting more professionalized management companies and processes in their communications and reporting, some managers are viewing the fundraising process almost as a continuous process.

“The firms that will grow the fastest – we can pretty reliably predict this – are those who understand that fundraising is a team sport, and that fundraising never stops,” a CFO at the event said. What is key, they said, is asking yourself how you can make sure that every touch point LPs have with your firm – from IR, to compliance, to the GP, to the fund administrator – is branded with the firm’s message: “What’s the one thing you can say about your firm to a LP that no one else can say?”

Firms need to ensure that every member of the team, whether a partner or finance directors, are on the same page when it comes to LP communications, said another. Especially when many meetings with LPs are done virtually, where it can be hard to build trust, having a clear and uniform presentation “makes a huge difference in having a successful fundraising process and in building that trust,” said the first CFO.