SEC Chief Gensler Looking into Developing Label, Disclosure Rules for ESG Investing Products
The U.S. Securities and Exchange Commission’s (SEC) Chair Gary Gensler said that the commission is looking into rules for ESG investment products, including disclosures for fund managers regarding the criteria used and data utilized for “ESG,” “green,” or “sustainable” labelled products.
In his “Office Hours with Gary Gensler” video series, the SEC Chair made an analogy between the ability of consumers to determine if milk is fat-free by looking at the nutrition label and the need for investors to understand the products they are buying, saying that “it might be time to make it easier to tell if “green” or “sustainable” funds are really what they say they are.”
Gensler said:
“I think investors should be able to drill down and see the ingredients underlying these funds.”
Gensler highlighted the significant growth in ESG investment products, noting estimates that there are already at least 800 registered investment companies with more than $3 trillion that say they are investing in assets that achieve some form of environmental, social or governance goal. Yet Gensler says that while investment managers are increasingly making claims about the ESG aspects of their products, the information provided about what makes the funds green or sustainable remains unclear.
Pointing out that while investors in products such as high yield bond funds can find information in fund disclosures such as the bond ratings of the underlying securities in order to understand the criteria and data behind the funds, Gensler noted that “ESG investing” has a very wide range of definitions, with some managers using the label to indicate that the fund screens out certain sectors or activities, while others specifically target specific investments, and some make claims regarding the greenhouse gas emissions or other environmental profile of the investments.
Gensler said, “I’ve asked staff to build upon our naming rules and conventions, and consider recommendations about whether fund managers should disclose the criteria and underlying data they use in so-called ESG investing.”
The Sec Chair added:
“It’s easy to tell if milk is fat-free, it might be time to make it easier to tell whether a fund is really what they say they are.”