The U.S. Securities and Exchange Commission (SEC) announced that it is withdrawing a series of proposed rules initiated during the tenure of former SEC Chair Gary Gensler, including a rule requiring disclosures by investment managers marketing ESG-focused funds aimed at providing consistent information to investors and to avoid greenwashing risk.
The announcement marks the latest in a series of moves shifting the SEC away from Gensler’s climate and ESG-focus since the former Chair’s resignation from the Commission upon the inauguration of Donald Trump as President, including recently dropping rules aimed at preventing companies from excluding shareholder proposals from their proxy statements, and a decision by the Commission in March to end its legal defense of its climate disclosure rules.
Initially launched by the SEC in 2022, the proposed “Enhanced Disclosures by Certain Investment Advisers and Investment Companies About Environmental, Social, and Governance Investment Practices” rule was designed by the Commission to address the lack of clear rules communicating the ESG attributes of an increasing number of funds marketing themselves using terms such as “green” or “sustainable.” At the time, the Commission said that the lack of consistent and comparable data “makes it difficult for investors to make better informed investment decisions that are in line with their ESG investment goals,” and “may lead to potential greenwashing.”
The SEC’s rule proposed specific disclosure requirements regarding ESG strategies in fund registration statements, fund annual reports, and adviser brochures, enabling investors to identify funds that do not consider ESG factors, and to compare and differentiate funds that do consider ESG factors. The proposal also included disclosure requirements for ESG-focused funds and integration funds to address potential exaggerated claims about ESG strategies.
Under the proposal, funds classified as ESG-focused that consider environmental factors also would have been required to disclose greenhouse gas (GHG) emissions metrics, such as the carbon footprint and carbon intensity of the fund’s portfolio.
The proposals also required ESG-focused funds to present information in a standardized, tabular format, enabling investors to quickly identify the types of ESG strategies being used, and to easily compare with other funds.
In its statement announcing the withdrawal of the proposal, the SEC said:
“The Commission does not intend to issue final rules with respect to these proposals. If the Commission decides to pursue future regulatory action in any of these areas, it will issue a new proposed rule.”
