The Securities and Exchange Commission (SEC) has proposed amendments to rules on reporting environmental, social, and governance (ESG) factors for investment companies and advisors.
The proposed amendments would categorize certain types of ESG strategies broadly and require funds and advisers to provide more specific disclosures in fund prospectuses, annual reports, and adviser brochures based on the ESG strategies they pursue.
For example, funds focused on the consideration of environmental factors generally would be required to disclose the greenhouse gas emissions associated with their portfolio investments. Funds claiming to achieve a specific ESG impact would be required to describe the specific impacts they seek to achieve and summarize their progress in meeting them. Further, funds that use proxy voting or other engagement with issuers to implement their ESG strategy would be required to disclose information regarding their voting of proxies on particular ESG-related voting matters.
“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. “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 proposal would also require certain ESG reporting on Forms N-CEN and ADV Part 1A to complement the proposed ESG disclosures in fund prospectuses, annual reports, and adviser brochures. These are forms on which funds and advisers report census-type data that inform the SEC’s regulatory, enforcement, examination, disclosure review, and policymaking roles.
The comment period on the proposals will remain open for 60 days after publication in the Federal Register.