SEC unveils rules to prevent misleading claims and enhance disclosures by ESG funds

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  • The Securities and Exchange Commission on Wednesday proposed two rule changes that would prevent misleading or misleading claims by US funds on their Environmental, Social and Corporate Governance (ESG) qualifications and increase disclosure requirements for those funds.
  • The proposals, which are subject to public backlash, come amid growing concerns that some funds to profit from increased ESG investment practices have misled shareholders about what is in their holdings, a practice known as greenwashing. goes.
  • The proposals to tackle greenwashing came after the SEC introduced comprehensive rules in March that would require publicly traded companies to disclose how climate change risks affect their business.

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The Securities and Exchange Commission on Wednesday proposed changes to two rules that prevent misleading or misleading claims on their environmental, social and corporate governance (ESG) qualifications by US funds and increased disclosure requirements for those funds.

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The proposals, which are subject to public backlash, come amid growing concerns that some funds seeking to profit from increased ESG investment practices have misled shareholders about what is in their holdings, a practice known as “greenwashing”. Is.

The measures will guide how ESG funds should market their names and investment practices. A proposal would update the name rule to include ESG-related attributes.

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The current name rule states that if a fund’s name states that it is focused on a particular class of investment, such as government bonds, at least 80% of its assets must be in that class. The change would expand the rules to “any fund with a name suggesting that the fund is focused on investments that have (or are whose issuers) special characteristics.” Therefore, funds with “ESG” in their name must clearly define the term and then ensure that 80% of the assets in the fund adhere to that definition.

“A lot has happened in our capital markets over the past two decades. As the fund industry has evolved, gaps in the current name rule could undermine investor protections,” SEC Chairman Gary Gensler said in a statement.

“In particular, some funds have claimed that the rule does not apply to them – even though their name suggests that investments are selected based on specific criteria or characteristics,” Gensler said. “Today’s proposal will modernize the name rule for today’s markets.”

Global ESG funds received a record $649 billion in investments in 2021 as of November 30, up from $542 billion in 2020 and $285 billion in 2019, according to data from financial services firm Refinitiv Lipper. ESG Fund Now covers about 10% Fund assets around the world.

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The proposals to tackle greenwashing come after the SEC introduced broader rules in March that would require publicly traded companies to disclose how climate change risks affect their business, as well as provide more information about how their operations affect the environment and carbon emissions.

“ESG covers a wide variety of investments and strategies. I think investors should be able to see what is under the hood of these strategies,” Gensler said. “It falls at the heart of the SEC’s mission to protect investors, allowing them to efficiently allocate their capital and meet their needs.”

Andrew Behr, president of the climate activist organization As You So, said the new name rule would improve — but not stop, misleading labeling for investors.

Behr said, “The new rule acknowledges the problem but does not fully address it. Investors still need clarity on other words such as ‘sustainable’ and ‘fossil-free,’ ‘low carbon’ and ‘ESG’.” is.” “It is important that a fund’s prospectus reflects its philosophy and intent in alignment with its name and holdings.”

Rachel Curley, a democracy advocate for the nonprofit Public Citizen, said in a statement that the SEC’s new rules on fund portfolios will begin to change the landscape around “green” investing.

“In the current market, retail investors don’t have a clear picture of what it means to invest in a fund whose marketing says it is ‘sustainable,’ ‘green,’ or ‘ESG,'” said Curley. said. “The lack of transparency for investors makes it difficult to gauge how environmentally friendly some of these products are.”

Proposals will enter a 60-day public comment period after publication in the Federal Register, during which companies, investors and other market participants can comment on and suggest changes to the rules.

— CNBC’s Thomas Franco

Credit: www.cnbc.com /

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