US securities regulators unveil proposal to combat ‘greenwashing’

NEW YORK: U.S. securities regulators unveiled a proposed rule Wednesday (May 25) to tighten disclosure requirements for the rising number of investments touting their commitment to environmental, social and governance (ESG) goals.

To address the issue of “greenwashing,” where financial investments may not comply with marketing statements, the Securities and Exchange Commission said the measure was intended to standardize disclosure and prevent instances where a fund “is de facto overweight of ESG.” factors may exaggerate”.

SEC Chairman Gary Gensler said the rule was necessary as the size of the so-called “US sustainable investment universe” has grown to $17.1 trillion, according to one estimate.

“However, once an investor reads current information, it can be very difficult to understand what some funds mean when they say they are an ESG fund,” Gensler said. “There is also a risk that funds and investment advisors may mislead investors by exaggerating their ESG focus.”

Funds that integrate ESG factors alongside non-ESG factors should indicate how ESG is incorporated into the investment process, while ESG impact funds should indicate how they measure progress, the SEC said on the proposed rule.

Funds that emphasize the environment should disclose the carbon footprint of their investments.

Against the proposal, SEC Commissioner Hester Peirce, a Republican commissioner who said she supported the idea of ​​tightening standards, but the new rules did not sufficiently define ESG.

The proposal “avoids explicitly defining E, S and G, but implicitly uses disclosure requirements to drive substantial changes in the ESG practices of funds and advisors,” she said. “Investors will pick up the tab for our latest ESG exploits without seeing much benefit.”

The SEC plans a 60-day public comment period on the proposal.

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