US: SEC proposes new ESG rules for fund managers and advisers

Driven by concerns about greenwashing, the US Securities and Exchange Commission (SEC) has issued two new ESG-related proposals that would apply to investment advisers and registered investment companies (see here and here). 

Among other things, the proposals would:

• require advisers to make specific and standardized disclosures regarding their ESG strategies in their Form ADV, and registered investment companies to make similar disclosures in their registration statements and annual reports;
• require certain registered investment companies to disclose information regarding the greenhouse gas emissions associated with their portfolio investments; and
• expand the scope of the so-called “Names Rule”, which requires certain registered investment companies to adopt a policy to invest at least 80% of their assets in accordance with the investment focus suggested by the fund’s name, to apply to fund names that suggest an investment focus with particular characteristics, such as ESG factors.

The SEC has provided a 60-day comment period (rather than the 30-day period it has provided in many recent rulemaking proposals). Given the SEC’s current rulemaking agenda – which includes finalizing ambitious proposals relating to climate change disclosure, private funds, SPACs and cybersecurity – it is difficult to say for certain when it will finalize these rules, and what form the rules will take.

These proposals represent a significant development for investment advisers and investment companies and demonstrate the SEC’s continued focus on ESG off the back of its Climate Disclosure Proposal for public companies in March 2022.

For more information, see our client briefing: ESG spotlight moves to investment advisers and registered funds under SEC proposals.