The US Securities and Exchange Commission is taking its biggest step yet to stop money managers from misleading investors when they claim their funds are focused on environmental, social or governance issues.
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The agency proposed a slate of new restrictions Wednesday aimed at ensuring ESG funds accurately describe their investments. Some would also need to disclose the aggregated greenhouse gas emissions of companies they’re invested in, according to the SEC.
Concerns are mounting over a lack of consistent standards for investments claiming to be sustainable, with the ESG label slapped on everything from exchange-traded funds to complex derivatives. During the Biden administration, the SEC has been focused on the issue, and has signaled a clampdown was looming.
“It is important that investors have consistent and comparable disclosures about asset managers’ ESG strategies so they can understand what data underlies funds’ claims and choose the right investments for them,” SEC Chair Gary Gensler said in a statement.
In one proposed change, the SEC would expand an existing rule to ensure funds labeled ESG invest at least 80% of their assets in a way that lines up with that strategy.
The agency is also weighing more standardized disclosures about their investment strategies. Those changes could help investors get a better understanding of the underlying investments in a fund and its overall strategy for addressing climate change or social issues like diversity, equity and inclusion.
Republicans oppose the SEC’s focus on ESG, and say the agency shouldn’t play a role in rating municipal debt and or in making decisions about provide financing to oil, gas and coal companies.
“These proposals are designed to manufacture activism by funds on ESG issues,” said Republican Commissioner Hester Peirce, who opposed the proposal.
Read the full article here by Lydia Beyoud, Saijel Kishan, Advisor Perspectives.
