Agency considering new rules for vehicles appealing concerns about climate change or social justice
One of the proposals will expand the SEC’s rules governing fund names, while the other will increase disclosure requirements for funds with an ESG focus.
The boom in sustainable investment has posed a growing challenge for regulators in recent years. According to Morningstar, assets in the fund that claim to focus on sustainability, or ESG factors, reached $2.78 trillion in the first quarter, down from $1 trillion two years ago.,
Although the fees charged by such funds are generally much higher than what investors pay for low-cost index funds, there are few consistent standards for what constitutes an ESG stock, bond or strategy.
Some fund managers only buy stocks of companies they believe already have a small carbon footprint, while others may invest in firms that are publicly committed to doing better. Another strategy involves making a stake in an old polluter in hopes of moving the board or forcing proxy votes that pressure the firm to change its ways.
The ambiguity has led to widespread concern among investors and regulators that banks and asset managers who sell money are “greenwashing”, or exaggerating their environmental or social sustainability, to increase their own revenues. are doing.
Earlier this week, the SEC fined the investment-management arm of Bank of New York Mellon Corporation
$1.5 million for misleading claims about the criteria used to select ESG shares. BNY Mellon neither admitted nor denied wrongdoing.
Officials are also investigating Deutsche Bank AG’s
Businesshala reported last year that DWS Group has stepped up its sustainable-investment efforts. At the time, a spokesperson for DWS said the firm does not comment on questions related to litigation or regulatory matters. A Deutsche Bank spokesman declined to comment.
The first proposal on the SEC’s docket on Wednesday will address the requirements surrounding fund names.
Under a rule passed two decades ago, if a fund’s name suggests a focus on certain industries, geographies or investment types, it must invest at least 80% of its assets in such assets.
Wednesday’s proposal will expand the scope of the so-called name rule to cover funds that focus on ESG factors, or strategies such as “growth” or “value”. A fund that considers only ESG factors together – but not in excess of other inputs – shall not be permitted to use ESG or related terms in its name.
“Fund name is often one of the most important information investors use in selecting a fund,” SEC Chairman Gary Gensler said in remarks prepared for delivery at the meeting.
The second proposal being considered would require funds that consider ESGs in their investment processes to disclose more information based on their strategy. So-called impact funds that seek to achieve an ESG-related objective must explain how they measure progress towards that goal. Funds for which ESG investments are a significant or primary consideration will need to fill out a standardized table as well as additional information about greenhouse-gas emissions produced by the companies or issuers in their portfolios.
Mr. Gensler often compares such information to the nutritional facts printed on the back of a carton of skim milk.
“When it comes to ESG investments, however, there is currently a large range of what asset managers can disclose or imply from their claims,” he said on Wednesday. It can be difficult for investors to understand or compare funds, he added. “People are making investment decisions based on these disclosures, so it is important that they are presented in a meaningful way to investors.
—Amrit Ramkumar contributed to this article.
Write Paul Kiernan [email protected] . Feather
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