But the ESG disclosure proposal also has plenty of supporters.
Christine Chang, an investment officer in liquid defensive and diversifying strategies for the $22 billion Hawaii Employees' Retirement System, Honolulu, said ESG can be additive to returns and is a great risk mitigant. "Companies that are not prepared for the impacts of climate change are not going to do well," she said. "Companies that don't pay attention to issues that stakeholders care about are not going to do well and, of course, governance has always been a key part of risk assessment."
Ms. Chang is a proponent of the proposal for establishing a uniform mechanism to assess funds' ESG practices as well as for requiring ESG-focused funds to disclose additional information regarding the greenhouse gas emissions associated with their investments.
"ERS has the obligation, as a state agency, to consider the impact of investment plans, decisions and strategies on the state's ability to achieve net-zero emissions by 2045 while maintaining our primary purpose of generating returns for our retirees," Ms. Chang said in a interview. "It would be very helpful to have standardized quantitative measures of greenhouse gas emissions because it would allow for two things: one, an apples-to-apples comparison across funds, and two, a comparison over time. Having quantitative measurements allows investors to track improvement, or lack thereof, over time."
The Hawaii pension fund doesn't have the resources for its staff to read through all the varying ESG disclosures funds currently publish, Ms. Chang said. "It's difficult when each fund has its own custom ESG report; it's simply not possible to comb through all of them and decide how to equate one set of reporting to another without a dedicated team," she said. "So to have standardized reporting put in the same place and in the same format will be very helpful for aggregation to a total plan-level view."
Lindsey Apple, Boston-based proxy voting and engagement lead and a member of the sustainability research team at Mirova, a global investment affiliate of Natixis Investment Managers specializing in sustainable finance with $24 billion in assets under management, fully supports the proposal.
Though she understands the concern from some asset managers on the level of disclosure the SEC is proposing, Ms. Apple "only sees positive impact for" Mirova and investors. The proposal "will create a classification system that will enable the end investor to delineate the shops that mildly integrate ESG from the ones that have a really robust, thoughtful approach," she added in an interview.
Ms. Apple would like the SEC to make tweaks to its fund classifications in a final rule so they more closely align with existing frameworks in Europe, such as the Sustainable Finance Disclosure Regulation.
"We really think in order for this to be beneficial and to serve and protect the investor, global consistency is key," Ms. Apple said. "There's already a classification system that's understood by the marketplace, so more alignment with SFDR would be preferable in our view and would benefit the investor the most in order to have that comparable information."