The SEC Takes on ESG

🏛️ The SEC announced two new proposals yesterday aimed at ensuring that funds investing based on environmental, social, and corporate-governance (ESG) factors accurately describe their activities.

• The first proposal would overhaul the SEC’s requirements around fund names. Under a previous rule, if a fund’s name suggests it will focus on certain investment types, it must invest 80+% of its holdings in such assets; the new measure would expand that rule’s scope to also include ESG factors.
• The second proposal would require ESG funds to disclose more information to the public. For example, those seeking to achieve a specific climate-related objective would have to reveal how they measure progress toward that goal.
• The lone Republican on the SEC’s four-person commission voted against both measures, saying they would impose undue burdens on asset managers and reinforce decisions that only some investors favor.

📸 Big picture: Assets in funds claiming to focus on ESG factors reached $2.78 trillion last quarter, up from less than $1 trillion two years earlier, according to Morningstar. 

• The fees charged by such funds are typically much higher than index funds, but the WSJ reports that there are few consistent standards for what constitutes an ESG investment.

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