Advisor’s ESG Recommendations Could Get Them in Hot Water

2 min read

ESG Programs Under the SEC Spotlight


The Securities and Exchange Commission (SEC) singled out ESG investing in its annual examination priorities letter in both  2021 and in 2020. Back in April, they went as far as issuing a  risk alert citing firms for making misleading statements about their ESG programs, inadequate controls around ESG marketing efforts, and lack of oversight and compliance deficiencies.

An official at the SEC warned this week, examiners at the Securities and Exchange Commission have been watching advisory firms that advertise investment strategies focused on environmental, social, and corporate governance (ESG). According to Kristin Snyder, who is the deputy director of the SEC.’s Division of Examinations, where examiners monitor how advisors tell clients that an investment strategy is aligned with certain values or risk factors, said at an annual SEC conference, “We’ve been significantly focused on examining advisors who are advertising and marketing environmental, social, and governance investments, and I know those investments can often be marketed in a number of different ways, whether it’s impact, or socially responsible, or ESG-conscious.”

Snyder recommended that advisors study the recommendations the commission published in their The
Division of Examinations’ Review of ESG Investing
and cautioned that examiners would continue to probe how advisors are backing up their ESG promises when examiners visit firms that promote purpose-driven investing strategies.

“In a nutshell, I think across all advisor types as well as looking at registered investment company investments, we’ll be looking at compliance programs, portfolio management, and marketing and advertising,” Snyder said.

“We’re not making merit-based judgments about any of these investments,” she said. “We’re simply ensuring that what advisors are marketing and representing to their investors is actually happening in practice and that with compliance, there are policies and procedures and controls to ensure that the portfolio management practices that the advisor markets and advertises actually are operating as they should.”


Bandwagon marketing by investment advisors will only be tolerated by the SEC if the ideas and underlying securities match an investment professional’s proposal. The rush to all things ESG by the investment community in 2021 has led to abuses. The SEC is aware of the overzealous marketing campaigns and is on the lookout at their regular examinations.

Suggested Reading:

Brokerage App Coercion? The SEC Wants You to Share Your Experiences

ESG Indicators and How Investors Use Them

Five Reasons Investors Increasingly Use ESG Standards

Are Small-Cap Stocks Smart Investments?





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