Dive Brief:
- The Securities and Exchange Commission declined to list ESG as a 2024 priority for its Division of Examinations. The agency announced the office’s priorities for the 2024 fiscal year on Monday, and the topic was absent from the document, despite previous inclusions from 2021-23.
- A SEC spokesperson told ESG Dive in an emailed statement that though ESG investing isn’t on the list, “The published priorities are not exhaustive and will not be the only issues addressed in [the next fiscal year’s] examinations.”
- In addition to keeping an eye on the main players with fiduciary duties, like investment companies, advisors and brokers, the Exams office plans to focus its 2024 assessments on companies’ cybersecurity practices, cryptocurrency and other emerging financial technology, money laundering and the integrity of the regulatory systems.
Dive Insight:
The agency’s emailed statement suggests that while ESG isn’t listed, the Exams office will still monitor the market for compliance over the upcoming fiscal year.
ESG made an appearance in each of the division’s last three yearly agendas, beginning in 2021 when the topic was featured prominently in the document’s introduction. The agency listed ESG as a “significant focus area” in its 2022 priorities report, more than tripling mentions of the acronym or “environmental, social, and governance” to 21, up from six the year before.
The number of mentions fell to seven in 2023’s version, but the agency kept the topic under its section of new and significant focus areas for this year. The SEC said rising investor demand for ESG funds had driven investment funds to increase their offerings, pushing the office to keep an eye on it, according to the office’s 2023 priorities released in February.
The division committed to monitor whether ESG-labeled funds were labeled correctly, operating in alignment with their disclosures and “whether recommendations of such products for retail investors are made in investors’ best interest,” it said in the document.
The SEC’s Division of Examinations is the agency office responsible for conducting on-site inspections of companies to monitor for risks, check for compliance and prevent fraud. SEC Chair Gary Gensler said the office is essential to protecting investors and its agenda for next year will “enhance trust in our ever-evolving markets.”
“In examining for compliance with our time-tested rules, the Division helps registrants understand the rules as well as ensures that markets work for investors and issuers alike,” Gensler said in a release.
The division is aligning the release of its agendas with the SEC’s fiscal calendar year for the first time, making it just eight months since the last set of priorities was sent out. Since its last agenda, the agency finalized updates to the Investment Company Act's "Names Rule," requiring investments like ESG funds to have at least 80% of its assets committed to serve that purpose.
While that rule won’t go into effect until fiscal year 2026 — in November 2025 — the agency acknowledged that regulatory changes like this, the agency’s in-progress climate disclosure rule or other new rules will impact the division’s operations. The Exams office said it expects to do more outreach to the industry and its stakeholders and increase in-person work and compliance outreach over the next year.
“The theme of evolving with the markets and remaining flexible in the ever-changing markets also carries over to our engagement with … the industry,” the office said in its 2024 agenda. “As the industry prepares to meet new regulatory requirements, similarly, the Division will need to consider the impact of these rules, which will influence potential examinations, compliance risks and new focus areas.”
