There are three types of ESG funds outlined in the proposal with varying requirements:
- Integration funds, which integrate ESG factors alongside non-ESG factors in investment decisions, would be required to describe how ESG factors are incorporated into their investment process.
- ESG-focused funds, for which ESG factors are a significant or main consideration, would be required to provide detailed disclosure, including a standardized ESG strategy overview table.
- Impact funds, a subset of ESG-focused funds that seek to achieve a particular ESG impact, would be required to disclose how they measure progress on objectives.
Investment advisers that consider ESG factor would be required to make similar disclosures in their brochures with respect to their consideration of ESG factors in the significant investment strategies or methods of analysis they pursue and report certain ESG information in their annual filings with the SEC, the fact sheet said.
The Investment Adviser Association said in a statement that it supports policies that facilitate sustainable investing, but does not believe additional requirements are needed in this area. The IAA objects "to actions that would limit the ability of investment advisers to pursue ESG — or any other — investment strategies on behalf of their clients or that would otherwise substitute a regulator's judgment about investment strategy for that of professional fiduciaries. As such, we also believe that investment advisers should not be required to consider a particular set of ESG — or any other — factors when making investment decisions because it is up to advisers who have the fiduciary relationship with and obligation to their clients, to determine what is in their clients' best interest."
The proposal's public comment period will be open for 60 days upon publication in the Federal Register.
In a separate 3-1 vote Wednesday, with Ms. Peirce again as the lone dissenting vote, the SEC proposed amendments to expand the "Names Rule" under the Investment Company Act of 1940. The Names Rule currently requires funds with certain names to adopt a policy to invest 80% of their assets in the investments suggested by that name. The proposal approved Wednesday would expand this requirement to apply to any fund name with terms suggesting that the fund focuses in investments that have, or investments whose issuers have, particular characteristics, a separate fact sheet noted. Fund names with terms such as "growth" or "value" and those indicating that the fund's investment decisions incorporate one or more ESG factors would be subject to the rule, the SEC said.
That proposal will also have a 60-day comment period upon publication in the Federal Register.