US SIF Submits Comment Letters to SEC on Naming Rule and ESG Disclosures for Investment Advisers and Investment Companies
Despite the positive features of the proposed fund and advisor disclosure rule, there are several areas of misalignment between the proposal and both current fund practices and investor needs that threaten to undermine the effectiveness of the final rule.WASHINGTON, D.C., August 16, 2022 – US SIF: The Forum for Sustainable and Responsible Investment today submitted letters in response to the Securities and Exchange Commission's (SEC) Notices of Proposed Rulemaking “Investment Company Names” (File No. S7-16-22) and “Environmental, Social and Governance Disclosures for Investment Advisers and Investment Companies” (File No. S7-17-22).
“US SIF has a long history of encouraging greater transparency and best practices by fund managers that consider environmental, social and governance factors,” said Bryan McGannon, US SIF Director of Policy and Programs. “We applaud the SEC for their effort to bring more clarity to fund names and disclosures.
“Despite the positive features of the proposed fund and advisor disclosure rule, there are several areas of misalignment between the proposal and both current fund practices and investor needs that threaten to undermine the effectiveness of the final rule. These misalignments are likely to generate higher compliance costs than those reflected in the proposed rule and to diminish expected benefits. Similarly, the Names Rule proposal contains aspects that need additional clarity and flexibility to be workable for fund compliance, and importantly, to provide clear, consistent, and uniform information available to investors.
“To ensure that the final rule provides investors with information they can use to fully evaluate funds that consider ESG factors without imposing overly burdensome fund compliance costs, US SIF recommends that the SEC make the following improvements to the fund and advisor disclosure proposal:
- Remove the fund categories and require all funds that consider ESG factors to disclose the same information to investors.
- Require a qualitative explanation of shareholder engagement activities instead of one metric on the number of meetings held.
- Require consistent greenhouse gas emissions metrics disclosures for funds that consider climate-related factors.
- The SEC should eliminate the proposal's provisions applicable to registered investment advisers.
- Clarify the definition of funds that may not use ESG or sustainability terms in the fund name.
- Ensure flexibility for funds to come back into compliance upon departure from the 80% policy requirement.
“Lastly, the term ‘ESG investing' is relatively new and may not be the right rubric to capture the range of sustainable investing strategies. In fact, the term ESG more correctly refers to the data points used in sustainable investment strategies, not the actual investments and strategies themselves. Thus, US SIF strongly recommends that the SEC use the term ESG only to refer to the environmental, social and governance factors. This will also assist end investors who may likely not understand the term ESG but do largely understand what is referenced by the term “sustainable.”
You can read US SIF's full comment letter on the proposed naming rule here and the proposed disclosure rule here.
About US SIF and the US SIF Foundation
US SIF: The Forum for Sustainable and Responsible Investment is the leading voice advancing sustainable investing across all asset classes. Its mission is to rapidly shift investment practices toward sustainability, focusing on long-term investment and the generation of positive social and environmental impacts. US SIF members include investment management and advisory firms, mutual fund companies, asset owners, research firms, financial planners and advisors, community investing organizations and nonprofit associations.
US SIF is supported in its work by the US SIF Foundation, a 501(C)(3) organization that undertakes educational and research activities to advance the mission of US SIF, including offering trainings for advisors and other financial professionals on the Fundamentals of Sustainable and Impact Investment.
Learn more at ussif.org.