You might have noticed that ESG wasn’t mentioned in the recently published examination priorities issued by the SEC. But that does not mean that ESG regulation is out of mind for the agency. It was mentioned in the priorities document in the last couple of years, and it would be tempting to read too much into the absence of any specific reference to it.
The other components of the document certainly point back to its proposed rulemaking on disclosure in this arena, and to the greenwashing-related and disclosure-related cases the agency has brought since last year.
For example, the SEC recently fined a subsidiary of Deutsche Bank $19m for making misleading statements about incorporating ESG factors into its ESG-integrated actively managed mutual funds and separately managed accounts. And it charged Goldman Sachs Asset Management for not following its own policies and procedures governing how ESG factors would be evaluated by its research team to select and monitor securities in its products.
“As satellite operations become more prevalent and the space economy accelerates, we must be certain that operators comply with their commitments.”FCC Enforcement Bureau Chief, Loyaan Egal
The agency also issued adopted amendments to the so-called Fund Names Rule that requires funds to invest 80% of their assets in alignment with the fund’s focus as conveyed by its label fund names to better reflect their investment strategies.
All of those actions “in their totality show that the SEC remains focused on ESG,” said Carlo di Florio, global advisory leader at ACA Group and a former director of the SEC’s examination program. The financial industry should pay attention to the agency’s body of work on ESG and not be lulled to sleep by the 2024 examination priorities, he said.
“I don’t read too much into it,” di Florio said. “Firms should continue with rigor and diligence to operate their ESG risk and compliance programs. They should not relax at all. They should continue to do the work they’re doing in this area.”
Take out the space junk
Dish Network agreed earlier this month to pay a first-of-its-kind penalty of $150,000 to the US Federal Communications Commission for leaving a retired satellite near the orbit where working satellites operate. Dish said the satellite had initially been exempted from the FCC’s rules when first commissioned and insisted that it takes its FCC license holder’s responsibilities seriously. In addition to paying the penalty, Dish admitted liability and will implement a compliance program, the FCC said.
The fine marks the FCC’s first action against space debris. According to the agency’s statement, it is part of the its effort to crack down on irresponsible activity such as the mismanagement of space debris, something that could lead to collisions between satellites and have sustainability implications, such as a release of hazardous chemicals into the upper atmosphere.
“As satellite operations become more prevalent and the space economy accelerates, we must be certain that operators comply with their commitments,” FCC Enforcement Bureau Chief Loyaan Egal said in a statement about the settlement.
Nasdaq’s diversity disclosure requirement
This past week, one of the most conservative US Courts of Appeals (the Fifth Circuit) upheld Nasdaq’s requirement that its listed companies include diverse directors on their boards or explain why they have not done so. More specifically, the rule requires companies in the exchange to have one director who identifies as female, a member of an underrepresented racial or ethnic minority, and a member of the LGBTQ+ community by the end of the year or explain why they do not.
While this does not directly implicate the Supreme Court’s recent affirmative action decision because the high court one focused on academic, rather than corporate, institutions, it was a significant ruling.
“Firms should continue with rigor and diligence to operate their ESG risk and compliance programs. They should not relax at all. They should continue to do the work they’re doing in this area.”Carlo di Florio, Global Advisory Leader, ACA Group
The court said the SEC acted within its authority in approving the rule, and was allowed to consider the opinions of investors who said board diversity information was important to their investment decisions. “This evidence is sufficient to support the SEC’s determination that regardless of whether investors think that board diversity is good or bad for companies, disclosure of information about board diversity would inform how investors behave in the market,” the panel wrote.
The case was brought by the National Center for Public Policy Research and the Alliance for Fair Board Recruitment, both of them hoping to block Nasdaq’s new rule.