The Investment Company Institute is all for honest ESG disclosure but doesn’t believe the SEC’s latest attempt at targeting greenwashing will help.
“Among its weaknesses, the proposal would elevate ESG-related disclosure over other types of information.”
The mutual fund and ETF industry organization released a statement Tuesday from ICI President Eric Pan regarding the SEC’s proposal to rein in misleading ESG practices.
“ICI fully supports regulatory measures to address concerns around greenwashing,” Pan said. “We believe it is critical that investors understand the differences between environmental, social, and governance (ESG) funds and non-ESG funds. ICI members aim to provide funds that meet a range of investor objectives. We recognize that confusion over ESG is undesirable to those investors who want to pursue ESG-related investment strategies and those who do not.”
Complex compliance
Yet, he added that the SEC’s disclosure proposal is too complex and risks sowing confusion among investors while imposing significant compliance burdens on funds.
“Among its weaknesses, the proposal would elevate ESG-related disclosure over other types of information, giving a misleading impression of its relative importance,” Pan continued. “Mandating disclosure of aggregated greenhouse gas (GHG) emissions data would put funds in an untenable position, given that their portfolio companies are not all required to supply the necessary data. In addition, any aggregated Scope 3 GHG emissions reporting by a fund would be costly to produce as well as worthless to investors due to data gap and methodology issues.”
ICI recommended that funds—and not the SEC—determine their principal investment strategies and proactively state if they focus on one or more ESG factors in selecting investments. Such funds would then be opting-in to the enhanced disclosures.
“Our other recommendations focus on improving the presentation of relevant information in the summary prospectus and ensuring funds have to report aggregated GHG emissions data only where portfolio companies supply the necessary underlying data in a regulatory report,” Pan concluded. “We believe our recommendations will make investors better informed about what these ESG funds are doing, which we understand is the objective of this rulemaking effort.”
CLICK HERE TO READ THE ICI’S COMMENT LETTER
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
