Schatz, Casten, Vargas, Smith Lead 17 Colleagues In Urging SEC To Finalize Strong ESG Funds Disclosure Rulemaking
WASHINGTON – U.S. Senator Brian Schatz (D-Hawai‘i), U.S. Representatives Sean Casten (D-Ill.) and Juan Vargas (D-Calif.), and U.S. Senator Tina Smith (D-Minn.) led 17 colleagues in a letter urging the Securities and Exchange Commission (SEC) to finalize its ESG Funds Disclosure Rulemaking.
“We recommend the final ESG Disclosures Rule include several key elements the SEC proposed: 1) only allowing funds for which ESG factors are a significant or main consideration to use ESG language in their names; 2) requiring engagement and proxy voting disclosures for certain funds; and 3) requiring GHG emissions disclosure for certain funds. We also encourage the SEC to consider requiring or allowing disclosure of additional metrics that funds use to implement their ESG strategy, as many commenters recommended,” the lawmakers wrote.
In May 2022, the SEC proposed rules to establish disclosure requirements for funds and advisers that market themselves as having an ESG focus. These proposed rules would require investment advisers and companies to provide more transparent and detailed information about their ESG practices, enabling investors to make more informed decisions.
In addition to Sen. Schatz, Reps. Casten and Vargas, and Sen. Smith, the letter was signed by Sens. Elizabeth Warren and Sheldon Whitehouse, as well as Reps. Jared Huffman, Summer Lee, Eleanor Holmes Norton, Katie Porter, Barbara Lee, Jan Schakowsky, Delia Ramirez, Ro Khanna, Kevin Mullin, Melanie Stansbury, Nydia Velázquez, Rashida Tlaib, Sydney Kamlager-Dove, Nikema Williams, and Alma Adams.
A copy of the letter can be found here and text can be found below.
Dear Chair Gensler,
We were encouraged by the recent finalization of the SEC’s climate disclosure rule, which represents an important step in providing investors with the information they need to accurately assess climate-related financial risk. We write now to urge you to finalize an anti-greenwashing rule you proposed in May 2022 titled “Enhanced Disclosures by Certain Investment Advisers and Investment Companies about Environmental, Social, and Governance Investment Practices” (“ESG Disclosures Rule”). Finalizing this rule is critical for addressing greenwashing and other exaggerated or unfounded ESG-related claims amongst funds and investment advisers. This rule is an important complement to “Investment Company Names,” a rule the SEC finalized last September.
As the SEC noted in its proposing release, “[i]nvestor interest in ESG strategies has rapidly increased in recent years with significant inflows of capital to ESG-related services and investment products,” and investment advisers have responded “by creating and marketing funds and strategies that consider ESG factors in their selection process.” However, funds and investment advisers are not currently required to substantiate their ESG strategies and practices through disclosures, which creates opportunities for greenwashing and other exaggerated or unfounded claims. We applaud the steps the SEC has taken to address these issues, including by bringing enforcement cases under current law, and by proposing rules to bring transparency to the market of ESG services and investment products. Investors need disclosures to know whether the ESG-branded and marketed services and investment products align with their investment needs, preferences, and expectations.
We recommend the final ESG Disclosures Rule include several key elements the SEC proposed: 1) only allowing funds for which ESG factors are a significant or main consideration to use ESG language in their names; 2) requiring engagement and proxy voting disclosures for certain funds; and 3) requiring GHG emissions disclosure for certain funds. We also encourage the SEC to consider requiring or allowing disclosure of additional metrics that funds use to implement their ESG strategy, as many commenters recommended.
We thank you for your commitment to protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation by requiring climate-risk disclosures by issuers. We hope to see the ESG Disclosures Rule finalized as soon as possible.
Sincerely,
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