The U.S. Securities and Exchange Commission (SEC) under President Joe Biden created a task force to enforce social justice and climate change goals prioritized by the administration.
The initial focus of the 22-member Climate and Environment, Social, and Governance (ESG) Task Force will be to “identify any material gaps or misstatements” by investment funds and publicly traded companies, analyze the “disclosure of climate risks under existing rules,” and “develop initiatives to proactively identify ESG-related misconduct,” the SEC’s press release announcing the creation of the task force states.
ESG means companies are rated not just on traditional metrics such as revenues and the quality of goods and services they offer but also on “social justice” goals such as carbon footprint, air quality of the supply chain, ratios of individuals of various ethnic and sexual groups employed, and many other such factors.
“Climate risks and sustainability are critical issues for the investing public and our capital markets,” Acting SEC Chair Allison Herren Lee said in the press release. “Now more than ever, investors are considering climate-related issues when making their investment decisions.
“It is our responsibility to ensure that they have access to material information when planning their financial future,” Lee said.
To encourage industrywide compliance, the task force will evaluate and pursue tips, referrals, and whistleblower complaints on ESG-related issues.
The SEC task force will examine whether firms accurately describe their ESG investing approaches, exercise due diligence in managing their ESG investments, and adopt business practices consistent with their stated ESG investment commitments.
Previous examinations by SEC staff have revealed “some instances of potentially misleading statements regarding ESG processes and representations regarding the adherence to global ESG frameworks.”
In particular, the commission has found instances in which portfolio management ESG practices were inconsistent with their stated investment approaches or failed to maintain, monitor, and update ESG investments according to their established restrictions and agreements, according to an April 9 SEC Risk Alert.
The SEC also found portfolio managers sometimes exercised proxy voting in ways inconsistent with the stated ESG approaches and made “unsubstantiated or otherwise potentially misleading claims regarding ESG approaches.”
President Joe Biden is politicizing investment, putting his administration’s political goals ahead of justifiable traditional standards of responsibility to investors, says Justin Danhof, director of the National Center for Public Policy Research’s Free Enterprise Project.
“The SEC has long required companies to disclose information that is actually material to investors,” Danhof said. “The materiality standard is central to corporate disclosures and the operation of our capital markets.
“Forcing ESG disclosures into the materiality standard will add unnecessary costs on American businesses while simultaneously increasing the politicization of corporate America,” Danhof said. “ESG is just code for liberal policies that are fodder for liberal activist investors.
This plan is about the Biden administration pressuring companies to submit to its climate and social justice goals.
“The Biden administration’s SEC plan is an attempt to shame any company that isn’t sufficiently woke and to give the mainstream media and activist investors new targets for protest and censure,” Danhof said. “All of this will weaken American businesses and make the United States less competitive in the global marketplace for capital.”
In the wake of the creation of the ESG task force, the SEC issued the April 9 Risk Alert, highlighting recent observations from examinations of investment advisors, registered investment companies, and private funds offering ESG products and services. The fact that investment advisors and funds have expanded their ESG investing and increased the number of product offerings across multiple asset classes justifies intervention by the SEC, the alert states.
“This rapid growth in demand, increasing number of ESG products and services, and lack of standardized and precise ESG definitions present certain risks,” the Risk Alert says. “For instance, the variability and imprecision of industry ESG definitions and terms can create confusion among investors if investment advisers and funds have not clearly and consistently articulated how they define ESG and how they use ESG-related terms, especially when offering products and services to retail investors.
“Actual portfolio management practices of investment advisers and funds should be consistent with their disclosed ESG investment processes or investment goals,” the SEC states in the alert.