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ESG fund rules reignite debate on SEC’s remit

August 4, 2022
Charles River Associates hand holding globe outdoor reflection

This article was originally published in International Financial Law Review.

The Securities and Exchange Commission (SEC) has once again come under fire and its supervisory scope been called into question in relation to a recent proposal aiming to tackle greenwashing in the asset management community.

Introduced in May this year, the proposal to enhance disclosures by investment advisers and companies on ESG investment practices has been formulated with goals to promote consistent, comparable and reliable information for investors on funds’ and advisers’ strategy.

With the comment period drawing to an end later this month, market participants have raised concerns as to the significant and potentially harmful consequences that the proposed rules could cause, and have questioned the efficiency of SEC’s approach.

“Many in the private sector see the requirements as quite prescriptive, and some of them are very detailed – up to hundreds of pages,” said Elaine Wood, vice president of the Risk, Investigations and Analytics Practice at Charles River Associates. “The concern is to avoid making this either a box-ticking exercise or so much of a burden that it may diminish appetite for a market that has an ESG label.”

If adopted, the new rules would lead to a categorization of ESG strategies and require funds and advisers to provide specific disclosures in fund prospectuses, annual reports, and adviser brochures on their chosen ESG strategies.

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