By Noah Rothstein
U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler has indicated that the SEC will make certain rule changes to address environmental, social, and government (ESG) investing as demand for ESG disclosures continues to gain momentum. Such changes would include how ESG risks are measured. Gensler indicated the changes could be implemented by the end of 2021.
As ESG investing is becoming a more potent force in the market, investors are seeking assistance from law firms in navigating the complex landscape of various standards and frameworks.
Everyone from the SEC and the Commodity Futures Trading Commission (CFTC) to politicians and global organizations have stepped into the conversation.
Although there are currently no ESG-specific regulations or rules in the U.S., many existing securities laws apply to ESG investing, and the SEC is responding with an all-agency approach.
Gensler emphasized widespread investor support for a mandatory climate risk disclosure rule. This new rule may require more qualitative and quantitative information to ensure that disclosures support informed investment decisions.
Gensler also asked his staff to consider revisions to the Names Rule, which might require disclosure of specific criteria and data underlying claims that a particular fund is, for example, “sustainable,” “green,” or “low-carbon.” The Names Rule requires mutual funds and exchange-traded funds to invest at least 80% of their assets in the investment type, industry, and geographic location their names suggest.
Gensler has asked SEC staff to consider increasing transparency around diversity and inclusion in the asset management industry. These efforts could require disclosure of employee and owner demographics, as well as diversity and inclusion practices.
The SEC chair views such enhanced measurement efforts as a significant driver for change based on his prepared remarks before the Asset Management Advisory Committee, particularly when considering the Committee’s thoughts on “how the workforce in the asset management industry can better represent the great diversity of our nation.”