SEC Proposes to Enhance Disclosures About ESG Investment Practices

On May 25th, the Securities and Exchange Commission (SEC) proposed amendments to rules and reporting forms to promote consistent, comparable, and reliable information to investors concerning funds’ and advisers’ incorporation of Environmental, Social, and Governance (ESG) considerations, according to a press release from the SEC.

“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,” SEC Chair Gary Gensler said.

Read the full press release from the SEC: SEC Proposes to Enhance Disclosures by Certain Investment Advisers and Investment Companies About ESG Investment Practices

ESG Strategy Disclosure – would require varied level of disclosure depending on the salience of ESG to a fund’s strategy.

• 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 processes.
• ESG-Focused Funds: Funds for which ESG factors are a significant or main consideration would be required to provide detailed disclosures, 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.

Impact, Proxy Voting, and Engagement – would require certain funds that use proxy voting or engagement with issuers to advance ESG strategy to provide additional information on those activities as well as including information about the impacts they seek to achieve and key metrics to assess their progress.

GHG Emissions Reporting – would require ESG-Focused Funds that focus on environmental factors to disclose the carbon footprint and the weighted average carbon intensity of their portfolio.

It is critical for firms to have a solid compliance program to ensure that policies and procedures are followed consistently. We will continue to follow the development of new rules and help you implement any necessary changes. Marketing review and ongoing testing of ESG procedures can help your firm survive scrutiny from the ESG Taskforce.

Fairview Investment Services provides full-service compliance support for registered investment advisers by creating and implementing comprehensive, sustainable compliance programs, including ongoing testing and evaluations to ensure firms are remaining compliant with SEC regulations. If your firm requires assistance with understanding and implementing SEC regulations, we can help. Contact us today for more information about our services.