the legal framework · esg investing for asset managers the legal framework asset management in...

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ESG investing for asset managers

The Legal Framework

Asset management in focus

June 9, 2020

Clifford Kirsch, Michael Koffler, Hannah Jones,

and Phil Spyropoulos

Eversheds Sutherland

Speakers

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Clifford KirschNew York, NY+1 212 389 [email protected]

Michael KofflerNew York, NY+1 212 389 [email protected]

Phil SpyropoulosLondon, UK+44 207 919 [email protected]

Hannah JonesLondon, UK+44 207 919 [email protected]


Agenda

─ The horizon for ESG and sustainable investing – a UK perspective

─ The legal considerations under the Investment Advisers Act of 1940

─ OCIE examinations focus

─ Recent SEC meetings and remarks

─ The SEC’s request for comment on fund names rule

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Legal and regulatory considerations under the Investment Advisers Act


Legal standards when incorporating ESG principles under Investment Advisers Act

─ Investment Advisers Act fiduciary duty

• duty of care: provide investment advice in the best interest of its client, based on the client’s objectives

• duty of loyalty: eliminate or make full and fair disclosure of all conflicts of interest that might incline an investment adviser – consciously or unconsciously – to render advice that is not disinterested such that a client can provide informed consent to the conflict

─ Advertising rule

─ Practical considerations:

• advisory agreements

• what disclosures and revisions need to be made in relevant offering documents and marketing materials

• how to design a due diligence process for selecting and reviewing ESG data providers

• what additional compliance policies and procedures (Rule 206(4)-7) and books and records processes (Rule 204-2) will need to be implemented in relation to a contemplated ESG strategy

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OCIE examinations focus

─ 2020 Examination Priorities Letter

• accuracy and adequacy of disclosures provided by investment advisers offering clients new types of emerging investment strategies, such as strategies focused on sustainable and responsible investing, that incorporate ESG criteria

─ 2019 ESG-targeted exams

• how an adviser defines ESG and related terms

• the role that ESG factors play in the adviser’s selection of investments

• whether an adviser seeks to adhere to certain industry standards, such as the United Nations’ Principles for Responsible Investment

• how the adviser uses third-party ESG data providers and/or scores, if at all, in its investment process

• whether and the extent to which an adviser engages in shareholder activism with respect to portfolio companies

• whether the adviser is acting based on a reasonably informed view, consistent with its disclosures to investors in offering documents, marketing materials, websites, Form ADV and other relevant materials, and in a manner consistent with its duties

• whether the adviser has appropriate compliance policies and procedures

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Recent SEC developments

─ Asset Management Committee meeting• Chairman Clayton’s remarks

• acknowledged that, increasingly, ESG issues are material to investment decisions

• indicated that ESG analysis across a broad range of companies would not facilitate meaningful investment analysis that was not significantly over-inclusive and imprecise

• ESG Subcommittee update

─ Investor Advisory Committee meeting• Investor-as-Owner Subcommittee presented a report that recommends that

the SEC begin an effort to update the reporting requirements of issuers to include material, decision-useful, ESG factors

─ SEC Fund Names Rule

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Questions?

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Speakers

Clifford KirschNew York, NY+1 212 389 [email protected]

Michael KofflerNew York, NY+1 212 389 [email protected]

Phil SpyropoulosLondon, UK+44 207 919 [email protected]

Hannah JonesLondon, UK+44 207 919 [email protected]

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