Environmental, Social and Governance (ESG) factors have been a hot topic for private funds for several years. Private fund managers must balance the increasingly sophisticated investor expectations and perspectives with a growing raft of relevant regulation. Most importantly, the legal standards by which fund managers will be measured and held to account are still being established. As such, managers are flying blind to some degree when it comes to ESG. 

A common ESG-related concern across the U.S.’s SEC, the U.K.’s Financial Conduct Authority (FCA) and drafters of applicable EU regulations is the exaggeration of a fund manager’s ESG practices or impact (historically known as “greenwashing” in the environmental context), to gain a competitive advantage by marketing a financial product as furthering one or more ESG goals when, the manager or the product do not meet advertised standards.