WASHINGTON, D.C.— Legal Director and Securities Specialist Stephen Hall issued the following statement on the publication in the Environmental Law Reporter of an article supporting strong regulation of funds that offer investments focused on environmental, social, and governance (or “ESG”) factors:
“ESG investing is attracting intense and growing interest among millions of investors who seek to maximize their financial returns. It also appeals to investors who want to align their investments with their core personal values. As we explain in our article, strong regulation of ESG funds is essential to protect investors, maintain the integrity of this burgeoning marketplace, and ultimately ensure that ESG investing can thrive. ESG investing is here to stay, and attempts to stifle it, such as those emerging on the Hill, are doomed to fail. The right approach is setting up the necessary guardrails and letting the free market and investor demand determine the course of this important investment trend.
“ESG investing is a strategy for allocating investment funds based on the extent to which the operations of a company, or a portfolio of companies, affect the environment, advance social justice, or follow good corporate governance practices. As it grows, so does the debate over how to regulate it. Some academics have recently advanced the claim that ESG mutual funds generally do offer their investors increased ESG exposure and vote shares in ways that support the ESG principles. They contend that there is no reason to single out ESG funds for special regulation.
“Our article pushes back on this conclusion, showing that there are several compelling reasons for additional regulations governing ESG funds. Such measures are necessary to protect investors from the abuses surrounding some ESG offerings; to bring order to a complex and confusing market by requiring clear, standardized, and comparable disclosures; and to maintain investor confidence in the integrity of this evolving market so that ultimately it can thrive. The SEC has rightly headed in this direction by proposing two important rules, one to prevent the use of misleading fund names and the other to provide investors in ESG funds with more detailed, consistent, and comparable disclosures.
“All of this stands to reason, of course. ESG investing is in huge demand; it is experiencing explosive growth; it is attracting trillions of dollars of investor funds; it has spawned a complex ESG investment industry and a daunting array of investment options; and it offers attractive profits for funds that can take advantage of investors’ enormous appetite for ESG investing. Moreover, there is every reason to believe that these trends will continue, as the vast majority of millennials favor ESG investing. Against this backdrop, the threat of investor abuse remains high and the need for greater clarity, uniformity, and comparability in the disclosure of information about ESG investing is clear.”
Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis 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.