The Securities and Exchange Commission issued two proposals in May that would require more disclosures from funds claiming to invest in companies that adhere to environmental, social and governance factors.
Hundreds of citizens, academics, financial advisors and asset managers shared their opinions during the open comment period that closed in June, but some major asset managers are still weighing in.
In a letter to the SEC in August, the world’s second largest asset manager, BlackRock Inc., warned U.S. regulators the proposed disclosures could spell trouble for investors and companies alike.
"The proposed requirements would increase the potential for greenwashing and lead to investor confusion," BlackRock wrote in the letter. "The granular nature of requirements will inevitably lead to the disclosure of proprietary information about these strategies, reducing the competitive advantage of those unique insights."
The agency is trying to curb greenwashing, a term used to describe the practice of overstating ESG fund offerings. The rules are essential if the SEC wants to eradicate the practice, according to advocacy groups.
“The variability and gaps in current disclosures frequently fail to capture material, financial climate risks faced by issuers and markets, thereby preventing investors from implementing efficient capital allocation and effective risk management,” said Alliance Bernstein in a June comment letter to the SEC. The asset manager announced the launch of its first set of ETFs earlier this year.
One of the world’s largest asset managers, Vanguard Group, said disclosing more information will be a boon for climate-conscious investors. “The broad adoption of meaningful climate disclosures would also preserve and create shareholder value by providing investors with the consistent climate data they need to (1) evaluate whether issuers are aware of, and adapting to, these rapidly evolving business and regulatory risks and (2) gain a more informed understanding of the climate risk management process at portfolio companies,” the company said in a comment letter.
Investor Confusion Ahead
Yet these firms also laid out concerns that the SEC’s rulings could create confusion for investors, increase compliance costs and create misleading information about sustainability levels at funds.
The SEC’s push for the added regulation has hinged on its potential benefits for investors, but industry groups claim the potential rule could do just the opposite.
“We are concerned that mandating specific climate-related disclosures to investment fund investors before issuers disclose such information to investors could result in inconsistent investment manager risk assessments and disclosures to fund investors,” the Managed Funds Association, a D.C.-based industry group that represents the alternative investment industry, said in a comment letter.
Contact Shubham Saharan at [email protected]