Broker Regulator Re-Ups ESG Marketing Warning as SEC Omits Term
The Financial Industry Regulatory Authority is keeping a lookout for brokers misleading customers about environmental, social and governance investments, three months after the SEC dropped ESG from its 2024 examination priorities.
FINRA has alerted firms for the second consecutive year that it’s scrutinizing the ESG-related claims they make to their clients. The warning came as part of the broker regulator’s annual examination and risk monitoring report, released Tuesday.
The Securities and Exchange Commission by contrast made no direct reference to ESG in its 2024 Division of Examinations priorities for brokers, investment advisers and other securities industry members after mentioning it in 2023, 2022 and 2021 inspection priority reports.
Brokers should review “communications to ensure that ESG-related claims are consistent with and supported by applicable offering documents” and balance “statements promoting ESG factors by prominently describing the risks associated with ESG funds,” FINRA’s report said.
- ESG funds may perform poorly and face other risks, FINRA said.
- Firms should ensure ESG rankings, ratings or awards in their communications are sound, warranted and truthful, the regulator said.
- FINRA didn’t identify any concerns about specific brokers’ ESG marketing.
