On November 4, the SEC's Division of Examinations issued a risk alert that identified systematic problems with funds' ESG disclosures. Specifically, the SEC stated that “[f]unds [] mischaracterized the use of environmental, social, and governance factors in their investment decision-making processes compared to their actual practices,” and noted this issue as being particularly prevalent in “sales literature, including websites.” In other words, the SEC determined that many funds claimed that they were adhering to ESG principles when investing despite the funds not actually doing so--in other words, greenwashing.

This announcement is significant for a number of reasons--beyond the obvious fact that the issue of greenwashing is noteworthy enough that the SEC felt compelled to issue a risk alert on the subject. Most importantly, the fact that the SEC issued a risk alert focused on greenwashing despite the disbandment of the SEC's ESG & Climate task force demonstrates the continued efforts by the SEC in this area, even in the absence of a dedicated team. (Indeed, when coupled with the recent ESG-focused enforcement activity by the SEC, the disbandment of the dedicated task force may simply mean that the task force's expertise has now been widely distributed among the various departments of the SEC.) Additionally, the fact that the SEC identified greenwashing among funds as a particular problem when evaluating its examination activities suggests that this particular issue--funds' misleading disclosures concerning ESG issues--may become a target for enforcement activity as well.