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ESG Funds Face SEC Probe Over Ceding Votes on Social Issues

  • Agency has made accuracy in ESG disclosures a priority
  • Wall Street regulator seeks information from asset managers
The U.S. Securities and Exchange Commission headquarters in Washington, D.C.

The U.S. Securities and Exchange Commission headquarters in Washington, D.C.

Photographer: Zach Gibson/Bloomberg

US regulators are expanding their crackdown on misleading labels of investment products with a probe focused on whether managers of funds that are marketed as sustainable are trading away their right to vote on environmental, social and governance issues.

For the past several months, Securities and Exchange Commission enforcement lawyers have been peppering firms offering ESG funds with queries, including how they lend out their shares and whether they recall them before corporate elections, according to four people with knowledge of the matter. The practice lets asset managers earn fees that benefit investors, but it can also impact the ability to cast ballots.