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SEC proposes new rules to prevent misleading ESG claims

On Behalf of | Jun 1, 2022 | Financial News

The Securities and Exchange Commission is proposing new rules to prevent misleading claims about funds’ environmental, social or governance (ESG) credentials, AdvisorHub reports.

The SEC said the amendments are designed to promote consistent, comparable and reliable information for investors regarding the incorporation of ESG factors.

Under one proposal, the SEC seeks to make sure that funds that are labeled ESG will invest at least 80% of their assets in a manner that aligns with that approach. Funds focused on the consideration of environmental factors generally would be required to disclose the greenhouse gas emissions associated with their portfolio investments.

The proposals would also require funds and advisers to provide more specific disclosures in fund prospectuses, annual reports, and adviser brochures based on the ESG strategies they pursue.

The SEC said it wants funds and advisers that market themselves as having an ESG focus to support those claims with relevant data.

“ESG encompasses a wide variety of investments and strategies,” said SEC Chair Gary Gensler. “I think investors should be able to drill down to see what’s under the hood of these strategies. This gets to the heart of the SEC’s mission to protect investors, allowing them to allocate their capital efficiently and meet their needs.”

The SEC added that funds claiming to achieve a specific ESG impact would be required to describe the specific impact they are trying to achieve and summarize their progress they are making towards those goals.

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