The SEC’s Shot Across the Bow on ‘Greenwashing’ in ESG Funds

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Just two days before issuing proposed rule amendments regarding the use of environmental, social, and governance (ESG) factors in mutual funds, the Securities and Exchange Commission (SEC) gave a vivid preview of its ESG fund enforcement agenda. On May 23, the SEC announced settled charges and a $1.5 million penalty against a mutual fund adviser for alleged misstatements and omissions in fund disclosures regarding ESG considerations. The SEC found that the adviser represented that investments in the funds had undergone an ESG quality review but in fact did not have ESG quality review scores for all investments held by the funds in question during a three-year period.

The settlement marks the first enforcement action by the Division of Enforcement’s Climate and ESG Task Force, formed in March 2021, and the first time the SEC has brought an enforcement action based on ESG disclosures made by a registered fund in nearly 14 years.

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