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The Securities and Exchange Commission’s (SEC, or Commission) Division of Examinations (Division) recently issued a Risk Alert highlighting staff observations from examinations of investment advisers, registered investment companies and private funds (firms) engaged in environmental, social, and governance (ESG) investing. This article summarizes the Risk Alert, including focus areas and observations of
deficiencies and internal control weaknesses, as well as recommendations of
effective practices relating to ESG investing that may be helpful in developing and enhancing a firm’s compliance practices.
As investor demand for ESG information rises, the need for investment firms to align their disclosure with actual practice and to integrate compliance personnel into their ESG-related practices will continue to grow.