Environmental, social and governance (ESG) focussed funds will be held to higher standards in 2023 by the US Securities and Exchange Commission (SEC).
ESGs are listed among the SEC’s key priorities which it will keep a close eye on this year, in a bid to manage risks to investors against emerging technologies and growing markets.
“The division will assess whether ESG products are appropriately labelled and whether recommendations of such products for retail investors are made in the investors’ best interests,” it said in a statement.
ESG funds, which invest in companies that boast better standards in each area respectively, have often faced scrutiny over their lack of ability to drive real-world change.
Florida, Louisiana and Missouri were among US states to pull public funding from asset management giant Blackrock last year over its supposed commitment to such investments.
US$2.7bn was collectively removed by the three states' officials, who argued ESG investments were politically motivated.
Former Blackrock fund manager Terrence Keeley suggested the entire ESG model was “broken,” meanwhile, suggesting investor returns were weaker and it did not act as a catalyst for improvement.
The US ESG market was valued at US$8.4trn in December, while the global value of ethically sourced funds is set to rise to US$50trn by 2025, accounting for one third of traded assets, say Bloomberg analysts.
In Europe, ESGs accounted for 65% of all flows into the ETF market last year, bringing total assets to a combined value of €248.8bn, according to US financial services firm Morningstar.
The SEC will also closely examine registered investment advisors to ensure they are acting in clients’ best interests, including on crypto assets.