OCIE’s Targeting of ESG Investing Practices in Recent Examinations and What It Means for Hedge Fund Managers

Environmental, social and governance (ESG) strategies are increasingly popular with investors and hedge fund managers. Thus, the SEC’s Office of Compliance Inspections and Examinations (OCIE) stated that it plans to review ESG investing with “particular interest” as part of its 2020 Examination Priorities. In fact, OCIE’s scrutiny of ESG investing may have already begun. A number of fund managers have reported receiving extensive document requests from OCIE – such as the sample version included in this article – about their ESG investing practices, including their disclosures, marketing, use of metrics, internal controls and other policies. In light of that scrutiny, fund managers must ensure that they know the risks associated with ESG investing and take steps to mitigate them. To understand the scope of the SEC’s efforts in this area to date and going forward, the Hedge Fund Law Report interviewed hedge fund practitioners advising managers with respect to recent OCIE exams that have covered ESG investing. This article analyzes the SEC’s recent approach to ESG oversight, potential ESG‑related risks for managers facing SEC scrutiny and steps managers can take to mitigate those risks in advance. See “Focus Areas for Private Fund Managers From OCIE’s 2020 Exam Priorities” (Feb. 27, 2020).

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