The U.S. Securities and Exchange Commission (SEC) proposed amendments to rules and disclosure forms to promote consistent, comparable, and reliable information for investors concerning funds’ and advisers’ incorporation of environmental, social, and governance (ESG) factors. The comment period for the proposed amendments will end 60 days after publication in the Federal Register.
The proposed rule and form amendments are designed to provide consistent standards for ESG disclosures, allowing investors to make more informed decisions as they compare various ESG investments. The proposal’s framework for ESG-related strategy disclosure is designed to allow investors to determine whether a fund’s or adviser’s ESG marketing statements translate into concrete and specific measures taken to address ESG goals and portfolio allocation. These proposed amendments would apply to certain registered investment advisers, advisers exempt from registration, registered investment companies, and business development companies. The proposed amendments seek to categorize ESG funds broadly into three types—Integration funds, ESG-focused funds and Impact funds. The proposed rules and form amendments would enhance disclosure by:
- requiring additional specific disclosure requirements regarding ESG strategies, including information about the impacts they seek to achieve and key metrics to assess their progress on achieving those impacts, in fund prospectuses, annual reports, and adviser brochures
- requiring ESG-focused funds to provide additional information about their proxy voting or ESG engagements
- implementing a layered, tabular disclosure approach for ESG funds to allow investors to compare ESG funds at a glance
- requiring certain environmentally focused funds to disclose additional information regarding the greenhouse gas emissions, including carbon footprint and the weighted average carbon intensity associated with their portfolio investments
In addition to these ESG disclosures, SEC also proposed amendments to reporting forms N-CEN and ADV Part 1A, which are XML-structured forms on which funds and advisers, respectively, report census-type data. These updated reporting forms would provide the SEC, investors, and other market participants with structured data that can be used to understand industry trends in the market for ESG investment products and services.
- Press Release
- Proposed Rule on ESG Disclosures
- Fact Sheet on ESG Disclosures Proposal
- Statement on ESG Disclosures Proposal
Keywords: Americas, US, Banking, ESG, Climate Change Risk, Disclosures, Reporting, Carbon Footprint, N-CEN, ADV Part 1A, Sustainable Finance, SEC, Subheadline
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
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