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Gwen Williamson represents registered investment companies and their independent directors, as well as investment advisers, family offices, and nonprofit organizations. She advises clients on governance and compliance responsibilities under the federal securities laws, including the Investment Company Act of 1940 and the Investment Advisers Act of 1940. Gwen has significant experience in the ESG and principles-based investing space.

In Part 1 of this post, we focused on the July 7, 2021, recommendations for funds and advisers from the Diversity and Inclusion (D&I) Subcommittee of the SEC’s Asset Management Advisory Committee (AMAC). Here we cover the August 6, 2021, SEC order approving diversity disclosure rules proposed by The Nasdaq Stock Market LLC (Nasdaq) and the public responses of SEC Commissioners. Suffice it to say, the Commission is not of one mind.

In recent weeks two important regulatory developments focused on diversity and inclusion (D&I) have come out of the SEC: the D&I Subcommittee of the SEC’s Asset Management Advisory Committee (AMAC) presented and received approval for its recommendations, and the SEC issued an order approving rule changes proposed by The Nasdaq Stock Market LLC (Nasdaq) relating to board diversity. SEC Chair Gary Gensler and other commissioners have publicly supported the Subcommittee’s recommendations and the new Nasdaq rules. But these developments are not uniformly popular at the SEC.

On April 9, 2021, the SEC’s Division of Examinations (the “Division”) published its first risk alert detailing deficient and effective practices among investment advisers and registered and private funds (“Firms”) offering ESG strategies. The SEC is not alone in its focus on ESG matters as the CFTC and its Climate Risk Unit (“CRU”) continue to assess the risks to U.S. financial stability posed by climate change.

Acting SEC Chair Allison Herren Lee continues to aggressively promote the SEC’s ESG agenda by launching a dedicated ESG webpage on the SEC’s website and speaking in support of ESG initiatives. The SEC’s Asset Management Advisory Committee (“AMAC”) is also moving forward with important ESG recommendations, including promotion of diversity and inclusion measures.

The pace of statements on ESG issues from SEC Commissioners on both sides of the political aisle shows no signs of abating. As Gary Gensler’s confirmation as SEC chair nears and acting Chair Allison Herren Lee continues to highlight the SEC’s prioritization of climate and other ESG matters affecting the financial markets, Commissioners Elad Roisman and Hester Pierce have voiced a need for restraint.

The Securities and Exchange Commission (“SEC”) isn’t the only regulator actively facilitating environmental, social and governance (“ESG”) investment strategies. Last week saw major developments at the U.S. Department of Labor (“DOL”) and the European Union (“EU”). The DOL removed potential roadblocks established by the previous administration, while the EU began implementing new disclosure regulations. On Monday, the acting chair of the SEC also continued her push for enhanced climate change and ESG disclosures.

Our last blog post in this ESG series discussed the February 24, 2021 Statement on the Review of Climate-Related Disclosure from Commissioner Allison Herren Lee, the SEC’s Acting Chair, and the ESG Funds Investor Bulletin published by the SEC Office of Investor Education and Advocacy on February 26, 2021. Those regulatory developments were followed quickly last week by other messaging from the SEC on ESG matters.

The SEC’s Acting Chair, Commissioner Allison Herren Lee, was a vocal critic of the SEC’s approach to environmental, social and governance (“ESG”) matters under former Chair Jay Clayton. She voted against the SEC’s 2020 guidance and amendments to Regulation S-K because they did not go far enough in requiring disclosure from public companies about climate change and diversity metrics, noting that climate risk is a new type of systemic risk of “colossal and potentially irreversible risk of staggering complexity” and arguing that “it’s time to consider how to get investors the diversity information they need to allocate their capital wisely.”  “Consistent, reliable, and comparable disclosures of the risks and opportunities related to sustainability measures, particularly climate risk,” she said, is material information that investors need in their decision-making process.

The Statement on the Review of Climate-Related Disclosure from Commissioner Lee and the ESG Funds Investor Bulletin from the SEC’s Office of Investor Education and Advocacy released last week were thus not surprising. They were also likely only the first in a series of ESG-related actions to come from the SEC.

Last week the SEC adopted rule amendments to the definition of “accredited investor” under Regulation D (“Reg D”) of the Securities Act of 1933. The rule amendments, the SEC says, are intended to modernize a term that has not changed in nearly 40 years and to “more effectively identify institutional and individual investors that have the knowledge and expertise to participate in” today’s “multifaceted and vast private markets.”