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New SEC Exam Chief Eyes Asset Managers’ Regard for Climate Risks

July 22, 2021, 7:12 PM

The SEC is scrutinizing how big investment firms are looking at their climate change risks, a senior agency official said.

Daniel Kahl, the Securities and Exchange Commission’s incoming examinations chief, didn’t identify any asset managers the agency is targeting. His remarks came in a pre-recorded session released Thursday at a Securities Industry and Financial Markets Association conference.

But the SEC has its eye on “systemically large firms” as part of its inspection work related to environmental, social, and governance issues, he said. Kahl is the deputy director of the agency’s Division of Examinations and is set to become the acting director in August.

The agency’s examiners are interested in getting a readout on firms’ thinking about climate risk for a potential risk alert, he said. Risk alerts highlight problems examiners are seeing and can precede enforcement actions.

“Firms are having lots of discussions with chief risk officers, boards of directors, and the like on climate and the impact on their business,” Kahl said at the SIFMA event (Bloomberg Law is an affiliate of Bloomberg LP, which is an associate member of SIFMA.)

Kahl’s comments came after the SEC announced earlier this year it was increasing its scrutiny of firms’ handling of ESG matters. The Division of Examinations made the topic one of its 2021 priorities and already has found some problems with investment firms’ ESG claims.

SEC examiners now also are looking at whether firms’ recommendations about ESG investment products comply with the agency’s broker conflict-of-interest rules, known as Regulation Best Interest.

“Looking at ESG through the lens of BI, I think will be something we’re going to be seeing more of,” Kahl said.

To contact the reporter on this story: Andrew Ramonas in Washington at aramonas@bloomberglaw.com

To contact the editors responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com; Roger Yu at ryu@bloomberglaw.com

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