SEC probes ESG funds on trading away voting rights

Enforcement lawyers have been asking ESG funds how they lend out their shares

The Securities and Exchange Commission has been grilling ESG fund providers to determine whether they are trading away their rights to vote on ESG issues, Bloomberg News reports.

Citing people familiar with the matter, the report said that, for the past few months, enforcement lawyers for the SEC have been asking questions of ESG funds about how they lend out their shares and whether they recall them before corporate elections. The practice lets asset managers earn fees that benefit investors, but it can also impact the ability to cast ballots.

The regulator wants to know whether asset managers are making proper disclosures to investors, Bloomberg reports. The issue is whether ESG funds can actually affect positive social change if the shares they lend out end up in the hands of short-sellers who may have an opposing view.

The SEC declined to comment on Bloomberg’s report.

Such a move would come as part of a wider crackdown by the US authorities on the ESG investment industry, which has seen the SEC plan new regulations on ESG product marketing, and sue companies over their ESG disclosures.