SEC Proposed Rules Aim at ESG ‘Greenwashing’

ESG greenwashing

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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:

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.

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