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August 17, 2022

SEC Rules Will Help Provide Reliable and Comparable Information for the Growing Number of Investors Interested in ESG Funds

WASHINGTON, D.C.— Stephen Hall, Legal Director and Securities Specialist at Better Markets, issued the following statement after Better Markets filed two comment letters with the Securities and Exchange Commission (SEC) regarding its proposals to require investment companies, investment advisers, and other entities to disclose to investors additional information regarding their environmental, social, and governance (“ESG”) investment strategies and to modernize the requirements regarding investment company names:

“Over the past three decades, ESG funds have grown from $639 billion in 1995 to $17.1 trillion in 2020, with a 42% increase from 2018-2020 alone. Despite this massive growth, there is no standardized ESG disclosure framework, presenting challenges for both investors and the SEC. The proposal would help solve this problem by establishing a standardized and layered ESG disclosure and reporting framework. It will help satisfy investor demands for more reliable, consistent, and comparable disclosures for ESG funds, based on the extent to which a fund considers ESG factors in its investment selection and issuer engagement processes.

“Investors 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 proposed changes to the investment company names rule (Names Rule) is also a necessary step to ensure that investors are not misled by the labels attached to funds, especially where those labels suggest an emphasis on the ESG factors.  The Names Rule currently requires funds with certain names to adopt a policy requiring 80% of their assets to be placed in the investments suggested by that name. The proposal would appropriately expand the scope of the rule to funds that incorporate certain terms in their names suggesting they focus on specific types of investments, including terms such as “growth” or “value or references to one or more ESG factors. This reform is especially important as the misleading practice of greenwashing by some asset management companies continues to be a concern.”

The comment letters on ESG disclosures can be found here and the letter on the Names Rule can be found here.

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Better Markets is a non-profit, non-partisan, and independent organization founded to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org.

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