SEC to Require Disclosures of ESG Investment Practices

On May 25th, the Securities and Exchange Commission (SEC) proposed amendments to rules and reporting forms that require certain funds and investment advisers to disclose their environmental, social, and governance (ESG) investment practices. The purpose is to promote consistent, comparable, and reliable information for investors about how funds and advisers are incorporating ESG factors. 

The amendments would categorize specific types of ESG strategies by requiring ESG-related disclosures in fund prospectuses, annual reports, and adviser brochures; disclosures of the use of greenhouse gas emissions data associated with portfolio investments; and implementation of a standardized approach to describing the impacts and progress achieved by certain types of ESG funds. “I think investors should be able to drill down to see what’s under the hood of these strategies,” said SEC Chair Gary Gensler. “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 proposed changes would apply to specific registered investment advisers, advisers exempt from registration, registered investment companies, and business development companies. They will be published in the Federal Register, with the comment period remaining open for the following 60 days.