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SEC Issues Investor Bulletin on Environmental, Social and Governance (ESG) Funds

March 25, 2021 Blog

Environmental, social and governance (ESG) funds have gained popularity with investors over the past couple of years. These funds target investments based not solely on financial factors, but also on factors such as environmental sustainability, social responsibility, and corporate commitments to ethical and moral practices.

While ESG funds are attractive to many investors, investors need to ensure that they have a clear understanding of how these funds operate before investing. The U.S. Securities and Exchange Commission (SEC) recently issued an Investor Bulletin discussing some important considerations, and securities fraud attorney Jake Zamansky shares his thoughts below.

What Does It Really Mean to Be an ESG Fund?

As the SEC explains, “Funds that elect to focus on companies’ ESG practices may have broad discretion in how they apply ESG factors to their investment or governance processes.” Not all ESG funds take the same approach—or even consider the same types of factors when deciding which types of investments to target. For example, some of the different types of approaches ESG funds may take when selecting companies in which to invest include:

  • Considering ESG factors alongside macroeconomic trends
  • Considering ESG factors alongside company-specific criteria
  • Focusing primarily on ESG factors as means for driving profitability
  • Focusing on companies that have room for improvement in ESG areas
  • Focusing on specific environmental, social or government factors in combination with one of the other approaches listed

Additionally, as noted in the SEC’s Investor Bulletin, “[a] fund’s portfolio might also include securities that don’t fit any of the ESG categories, particularly if it is a fund that considers other investment methodologies consistent with the fund’s investment objectives.” There is very little uniformity among ESG funds, and this makes it particularly important for investors to thoroughly research these funds—especially if they have specific environmental, social, or governance-related goals in mind.

Considerations for Evaluating ESG Fund Investments

Given the broad disparity between ESG funds, there are several factors to consider when evaluating a potential investment in an ESG fund. Some examples of these factors include:

  • Lack of Standardization and Uniformity – The SEC does not provide ratings based on ESG factors. As a result, most funds create their own ratings, and each fund’s ratings are based on the fund’s own methodology.
  • Investment Risk, Due Diligence and Transparency – Given the unique aspects of ESG funds, prospective investors must carefully assess the risks involved with investing in these funds. Investors should conduct thorough due diligence (seeking professional help if necessary), and they should expect complete transparency regarding funds’ rating methodologies, investment criteria and fees.
  • False ESG-Related Claims or Representations – Some funds may falsely claim to adhere to ESG principles. If you are misled into investing in an ESG fund (or an ESG scam), you should speak with a securities fraud attorney right away.

Speak with a Securities Fraud Attorney at Zamansky LLC

Do you have concerns about an investment you made in an ESG fund? If so, we encourage you to speak with one of our experienced securities fraud attorneys. To schedule a free consultation at Zamansky LLC, call 212-742-1414 or request an appointment online now.

Client Reviews

“Jake Zamasky and his colleagues represented me in a FINRA arbitration case against a large multinational bank and succeeded in obtaining an award for the full amount of my investment losses. I would highly recommend the Zamansky firm for their experience in securities litigation, their level of detailed research and case preparation, and their ability to effectively fight for what’s right.”

Richard R.

“Throughout my entire case, Jake Zamansky was incredibly responsive and spent time walking me through each step of the process. He is professional and worked with my challenging schedule, even meeting with me nights and on weekends. He knew exactly which turn to take when it came to my case and yet was respectful of any decisions I wanted to make resulting in a positive outcome.”

Donald A.

“Jake Zamansky and his firm represented me in a FINRA arbitration case to recover investment losses. Jake and his team were very professional and worked very hard preparing for trial and then reaching a substantial settlement of our case. I would highly recommend them.”

William E.

“Jake Zamansky represented me in a FINRA arbitration case which allowed me to recover a substantial portion of investment losses. He is truly an expert in this space and I would highly recommend him to those investors who may have been been a victim of investment fraud.”

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“Jake and his team did a great job communicating with me throughout the process of my lawsuit. I would recommend him to anyone looking to sue UBS for unethical practices.”

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