The Securities and Exchange Commission (SEC) proposed new rules Wednesday to curb investment vehicles from misleading clients about their adherence to ESG principles, a practice known as greenwashing.
The proposed amendments to rules and reporting forms seek consistent, comparable, and reliable information for investors concerning funds’ and advisors’ use of ESG—or environmental, social, and governance—factors.
“I am pleased to support this proposal because, if adopted, it would establish disclosure requirements for funds and advisers that market themselves as having an ESG focus SEC Chair Gary Gensler said in a statement. “ESG encompasses a wide variety of investments and strategies. I think investors should be able to drill down to see what’s under the hood of these strategies. This gets to the heart of the SEC’s mission to protect investors, allowing them to allocate their capital efficiently and meet their needs.”
The SEC said the proposed amendments would categorize certain ESG strategies broadly and require funds and advisors to provide specific disclosures in fund prospectuses, annual reports, and brochures based on the ESG strategies they pursue.
More specifically:
- Funds focused on the consideration of environmental factors generally would be required to disclose the greenhouse gas emissions associated with their portfolio investments.
- Funds claiming to achieve a specific ESG impact would be required to describe the specific impact(s) they seek to achieve and summarize their progress on achieving those impacts.
- Funds that use proxy voting or other engagement with issuers as a significant means of implementing their ESG strategy would be required to disclose information regarding their voting of proxies on ESG-related voting matters and information concerning their ESG engagement meetings.
Finally, the proposal would require certain ESG reporting on Forms N-CEN and ADV Part 1A, which are forms on which funds and advisers, respectively, report census-type data.
The proposal will be published in the Federal Register. The comment period will remain open for 60 days after publication in the Federal Register.
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.
