Better Markets filed a comment letter in response to the Securities and Exchange Commission’s proposal to requireinvestment companies, investment advisers, and other entities to disclose to investors, and report to the SEC, additional information regarding their environmental, social, and governance (“ESG”) investment strategies.
Why It Matters. ESG funds have grown immensely over the past three decades. According to the US Sustainable Investing Forum, investments that incorporate ESG strategies has grown from $639 billion in 1995 to $17.1 trillion in 2020 with a 42% increase from 2018-2020 alone. The rate of investor assets flowing into these types of funds reflects the appetite investors have to align their investment strategies not only with their financial objectives but also with their core values and beliefs. There is ample evidence that investors are increasingly taking into account ESG factors when making investment decisions. A recent Morning Consult survey of investors found that 60 percent of all adults considered ESG ratings important when it came to investment decisions. Despite the sheer amount of assets flowing into these funds, there is no standardized ESG disclosure framework, which has led to confusion and frustration from investors, issuers, and regulators alike. It has also enabled funds and advisers to overemphasize or mislead investors about how their funds incorporates ESG factors.
What We Said. Based on the sheer size of the industry and the lack of a standardized disclosure framework, the Commission is rightfully concerned about the effectiveness of current disclosures by advisers and funds to clients and investors related to ESG investment strategies. Accordingly, investors are seeking and ultimately need access to reliable information about the degree to which funds are incorporating ESG considerations into their investment strategies. These disclosures are crucial to enabling investors to better tailor their investment decisions and allocate their capital in ways they think are most effective in advancing their financial goals as well as their core values. The Proposal’s layered approach to ESG disclosure will assist retail and institutional investors, funds, advisers, and regulators by providing them with more reliable, consistent, and comparable ESG disclosures. The disclosures provided will satisfy growing investor demand for material information that can guide their investment decisions and at the same time protect them from misleading and abusive claims surrounding ESG investment strategies.
Bottom Line. Better Markets supports the Commission’s proposed rule to require advisers and funds to disclose to investors and report to the SEC how they incorporate ESG factors into their investment selection process. This Proposal will assist retail and institutional investors, funds, advisers, and regulators by generating reliable, consistent, and comparable ESG disclosures and advance the SEC’s tri-partite mission of protecting investors, maintaining fair and orderly markets, and facilitating capital formation.
Read our full Comment Letter here or click the button below.