Greenwashing under the microscope again, as SEC proposes new rules

News Team, 31/05/2022

Gary Gensler, chair of the SEC

The US Securities and Exchange Commission (SEC), its markets regulator, has proposed new rules aimed at ensuring reliable information for investors and combating green-washing.

The proposal document was released last week and is out for a 60-day consultation period.

The SEC acknowledges that approaches to ESG investing vary widely, which can pose challenges for investors choosing between investment products and services.

The regulator found some funds focus on only one issue under the ESG umbrella - for example, a focus on environmental issues, social issues, or governance issues. Others are applying factors more broadly and implementing measures across each of the ESG categories.

Gary Gensler, chair of the SEC, commented: “When an investor reads current disclosures it can be very difficult to understand what some funds mean when they say they’re an ESG fund.

“There also is a risk that funds and investment advisers mislead investors by overstating their ESG focus.”

The proposal aims to give investors a full picture of is the offering when a  fund claims to be ESG compliant.

Key Proposed Rules

The proposal requires registered investment funds to make a number of disclosures: It would require funds that claim to consider ESG factors to provide investors with information in the prospectus about which factors they consider, along with the strategies they use.

This could include: whether a fund tracks an index; excludes or includes certain types of assets; uses proxy voting or engagement to achieve certain objectives; or aims to have a specific impact.

Additionally, funds that claim to be ESG-focused would also need to disclose details about the criteria and data they use to achieve their investment goals, as well as more detailed information about their strategies than funds that say they consider ESG factors.

Finally, certain ESG-focused funds would have to disclose relevant metrics.

For example, certain funds would be required to report the greenhouse gas emission metrics of their portfolios, while impact funds would be required to disclose metrics on their annual progress toward their ESG goals.

There would also be an obligation for certain investment advisers, particularly when offering to retail investors, to disclose similar types of information in their client brochures, covering any ESG factors and strategies mentioned.

Mr Gensler added: “People are making investment decisions based upon these disclosures, so it’s important that they be presented in a meaningful way to investors.”

Greenwashing concerns have been in focus recently. BNY Mellon was fined $1.5 million last week for greenwashing misstatements and omissions.

And DWS Group, majority owned by Deutsche Bank, is still under investigation by the SEC, US Department of Justice and Germany’s Federal Financial Supervisory Authority (BaFin) over greenwashing claims revealed by a whistle-blower.

The SEC is an independent agency of the US federal government. The primary purpose of the agency is to enforce the law against market manipulation. It has been chaired since April 2021 by Mr Gensler.

Having begun his career with 18 years at Goldman Sachs, where he rose to partner, Mr Gensler subsequently became assistant secretary of the Treasury under the Bill Clinton administration.

He was subsequently the assistant secretary of the Treasury for financial markets and then undersecretary of the Treasury for domestic finance.

He then spent five years as the chair of the Commodity Futures Trading Commission. He is also a professor at the MIT Sloan School of Management.

About PAM

PAM Insight is the world’s leading independent provider of essential specialist news, analysis and comparative data for the fast-evolving world of wealth management.

Read more about PAM


Dedicated to serve both investors and fund companies, aims at becoming the preferred publication platform for market professionals.

Read more