The SEC has proposed amendments to rules and disclosure forms relating to the incorporation of ESG factors.
The proposed changes would apply to registered investment companies, business development companies, registered investment advisers, and certain unregistered advisers. They would enhance disclosure by:
Requiring additional specific disclosure requirements regarding ESG strategies in fund prospectuses, annual reports, and adviser brochures;
Implementing a layered, tabular disclosure approach for ESG funds to allow investors to compare ESG funds at a glance; and
Generally requiring certain environmentally focused funds to disclose the greenhouse gas (GHG) emissions associated with their portfolio investments.
The proposal identifies the following three types of ESG funds:
Integration Funds. Funds that integrate ESG factors alongside non-ESG factors in investment decisions would be required to describe how ESG factors are incorporated into their investment process.
ESG-Focused Funds. Funds for which ESG factors are a significant or main consideration would be required to provide detailed disclosure, including a standardized ESG strategy overview table.
Impact Funds. A subset of ESG-Focused Funds that seek to achieve a particular ESG impact would be required to disclose how it measures progress on its objective.
These changes are designed to bring greater transparency to ESG claims made, which is an area that has been under scrutiny by other regulators.
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