OCIE Adds ESG/SRI to Routine Adviser Exam Requests

24 May 2021 Foley Funds Legal Focus Blog
Authors: Stuart E. Fross
In a sign of the times, the SEC’s Office of Compliance Inspections and Examinations is now including document requests relating to ESG, SRI, Impact, responsible, sustainable, green, ethical, impact or good governance investments recommended to advisory clients.  A review of OCIE’s most recent document request suggests that advisers should take a moment to revisit their preservation of all due diligence materials, including meeting notes, related to ESG investments.  Advisers can anticipate enquiry into the adviser’s “internal definition of any terms that related to ESG and/or SRI”, each factor utilized, and written policies and procedures relating to the application of such factors.  OCIE’s inquiry will include adherence to the UN Principles for Responsible Investment and written documentation of the adviser’s consideration of these principles in its investment processes.  OCIE will request also a 15-step table of every ESG investment, including how that investment scored on the adviser’s ESG scoring system.  While the balance of the exam request is to be expected (all ESG advertising, all performance returns, all books and records, all vendor contracts, all client agreements, etc.) some aspects of OICE’s line of enquiry may not be as intuitive.  OCIE is interested in (i) how profitable ESG investing turns out to be – looking for top 5 winners and losers; (ii) the adviser’s due diligence files and “personal notes” of meetings with management of portfolio companies, of meetings with customers and/or with investment consultants; and (iii) the receipt of any awards.  For advisers that engage external firms to conduct periodic mock SEC exams, one would think ESG compliance testing might be included in your next exercise.
This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status.