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The Nuances of ESG | An Interview with Perkins Coie

by | Apr 20, 2023

ESG has been a hot topic in finance over the last few years. How should we regulate it? Does every corner of the world have a different set of standards? How do we prevent greenwashing? With several companies releasing their 2022 impact reports, we thought what better time to dive into the nuances of ESG with our trusted partners Perkins Coie. Perkins Coie is a leading international law firm that is known for providing high-value, strategic solutions and extraordinary client service on matters vital to their clients’ success. We caught up with Gwendolyn Williamson, partner and ESG thought leader, at Perkins Coie for some color on the topic of ESG.

Manna Tree + ESG

Manna Tree’s mission is to invest in human health by supporting and scaling companies that make a positive impact on the health of consumers.  In doing so, Manna Tree considers environmental, social, and governance (“ESG”) issues when exploring a company and if they’re a fit for our portfolio. We see a company’s ESG factors as non-financial indicators that can influence our decisions.  For example, we generally exclude companies with products that we believe to be counterproductive to human health, such as alcohol and foods with synthetic ingredients. We also consider metrics that are intended to measure and potentially improve a company’s broader ESG impact.

Manna Tree understands that ESG factors present risk and opportunity for human health, generally, and for the financial performance of portfolio companies.  We are committed to active management of ESG issues to create long-term value and deliver superior risk-adjusted returns for investors.

Interview with Gwendolyn Williamson, Perkins Coie

  1. MT:  Does the SEC require ESG disclosure?

Gwendolyn Williamson: Not exactly.  Asset managers in the U.S. don’t have to make ESG-related commitments.  But if they do — for example, by advertising to investors that they emphasize one or more ESG factors or that they adhere to a responsible investing framework — all of their ESG-related communications must be consistent, accurate, and provable.

To achieve this, the SEC examinations staff has said that an asset manager should have a clear internal definition of ESG.  The definition(s) should be used consistently in every context, including regulatory disclosures, fund offering documents, the website, marketing materials, RFP responses, and performance and financial reporting.  The CCO is usually in the best position to develop a holistic control framework to test and document the firm’s adherence to its ESG commitments.  Accordingly, ESG policies, codes and standards should be a part of the firm’s compliance program. They should also be closely tailored for the firm’s investment activities, risks, and overall business.

  1. MT: What is greenwashing?

GW: Greenwashing is basically false advertising, or overselling a firm’s ESG commitment to take advantage of the ongoing popularity of sustainable/socially responsible investing trends in the U.S.  It’s the problem that the SEC is trying to solve for with its ESG-oriented examinations, rule proposals, and enforcement actions.

Since the SEC launched its Enforcement Task Force Focused on Climate and ESG in March 2021, there have been three ESG-related SEC enforcement actions involving asset managers.  In each case, the SEC claimed that while the firm promised ESG-related investment practices to investors, the firm could not document that those practices were applied as advertised.

  1. MT: Is ESG investing regulated different outside the U.S.?

GW: Yes.  Some countries are much further along than the U.S. in their regulation of ESG investing and green finance in general.  The E.U.’s Sustainable Finance Disclosure Regulation (SFDR), for example, affects U.S. asset managers doing business in Europe.  The SFDR, very generally, requires all asset managers to categorize their funds and other financial products by the strength of their ESG portfolio characteristics.  Asset managers in the E.U. must also make a variety of ESG-related disclosures about their funds and portfolio holdings. Soon, they will begin reporting on the results of principal adverse impact (PAI) testing around their investment activities.

By contrast, asset managers in the U.S. are not required to engage on ESG.   Because investment due diligence generally involves a thorough exploration of a company’s governance, questions have arisen whether new rules proposed by the SEC in May 2022 would classify every asset manager and fund in the U.S. as “ESG-integrated” and required to make baseline ESG disclosures.  Still, it’s unlikely that any final SEC rules will be as broad or as prescriptive as the SFDR in Europe.

  1. MT: How can operating companies protect themselves when reporting ESG?

GW: Last year’s ESG-related enforcement settlement between the SEC and a public company offers a good example of how important it is for all businesses to be sure that practice, policy, and communications are aligned around ESG matters.  In the settlement, a U.S. company operating mines in South America advertised its compliance with internationally recognized safety standards.  When a catastrophic mine collapse was found to be the result of unsafe practices, the SEC claimed that the company made false and misleading disclosures, including in its public sustainability reports that assured investors about the safety of the mining operations. The SEC staff at the time characterized the case as demonstrating that “companies can and should be held accountable for material misrepresentations in their ESG-related disclosures, just as they would for any other material misrepresentations.”

Similarly, a 2021 SEC settlement involved a CEO’s statements on social media that the company could build an alternative supporting automotive fueling infrastructure and manufacture trucks with low or zero emissions.  The SEC alleged that the CEO’s statements “misstated or far exceeded” what the company and its products “actually did or could do.”

To avoid falling into the same traps, companies should have controls in place to the veracity of any ESG-related advertising and adherence to ESG-related commitments.  For example, any third party ESG score or ranking should be internally verified before it’s shared publicly ESG performance measurement methodologies should be documented in a manner that can be tested.  A simple rule of thumb around ESG it to be sure that you do what you say you do.

  1. MT: What is the regulatory future of ESG investing in the U.S.?

GW: We are likely to see new ESG disclosure requirements for public companies and asset managers.  In May of 2022, the SEC proposed new rules that would require (1) significant climate-related disclosures from public companies and (2) detailed disclosure from asset managers with ESG strategies regarding, among other things, the ESG factor(s) considered and related methodologies; whether the strategies are ESG-integrated, ESG-focused, or ESG-impact; whether the firm follows a responsible investing framework; and any affiliations with ESG consultants or other service providers.  Related rules would require similar disclosure from registered funds like mutual funds and ETFs.  The proposed rules have not been adopted as of the posting of this blog.

ESG investing has become a political hot topic, with government action at the state level complicating matters.  In this environment, asset managers and operating companies should work with their counsel and compliance personnel to understand their regulatory ESG risk profile and be poised to respond quickly legal and regulatory developments.


A huge thank you to Gwendolyn Williamson and Perkins Coie. Perkins Coie serves as Manna Tree’s outside counsel and is a sponsor of our 2023 event schedule. Visit their website to learn more.

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