SEC unveils rules to crack down on misleading ESG claims by fund managers

• SEC seeks proper disclosure from fund managers about ESG investments

• Wall Street regulator plans to safeguard investors from ‘greenwashing’

US Securities and Exchange Commission (SEC) on Wednesday proposed a pair of new restrictions to stop money managers from misleading investors by claiming that funds are focused on environmental, social or governance issues.

The agency said funds focused on ESG would need to disclose companies’ aggregated greenhouse gas emissions to the investors.

“It is important that investors have consistent and comparable disclosures about asset managers’ ESG strategies so they can understand what data underlies funds’ claims and choose the right investments for them,” SEC Chair Gary Gensler said in a statement.

Concerns around 'greenwashing'

Concerns were mounting over a lack of consistent investment standards as money managers slap ESG labels on exchange-traded funds (ETFs), claiming that the companies in the fund are sustainable and environment friendly without proper disclosure — also known as ‘greenwashing’.

The SEC proposed expanding an existing rule to ensure funds that are labeled ESG, should invest at least 80% of their assets in a way that lines up with that strategy and also weighing more standardized disclosures about their investment strategies.

The proposals are the second set of significant ESG-related policy changes that the market regulator is considering under Gensler.

In March, the SEC said companies require to reveal detailed information about their greenhouse gas pollution and to outline the risks a warming planet poses to their operations.

Picture Credit: NBC News

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