ESG Strategies Continue Upward Trend; Gensler Hints at ESG Names Rule

Morningstar reports that sustainable investment strategies broadly outperformed their non-ESG counterparts in the second quarter mainly because of a revival among technology stocks. The Morningstar U.S. Sustainability Index returned 8.76% during the second quarter, edging out both the U.S. Market Index, which returned 8.72%, and the U.S. Large-Mid Cap Index, which returned 8.45%. SEC Chairman Gary Gensler recently suggested that the agency may pursue ESG regulation through 1940 Act naming conventions, which generally provide that if a fund’s name suggests a particular investment type, the fund must invest at least 80 percent of the value of its assets in that investment type. “A fund’s name is one of the first pieces of information that investors see. If a fund’s name suggests a certain investment focus, investors expect investment in that area,” Gensler remarked to the SEC’s Asset Management Advisory Committee. Gensler added that “updates to fund disclosures and to naming conventions could bring needed transparency to the asset management industry, particularly in light of the significant growth in the sustainability area. This gets to the heart of the SEC’s mission to protect investors and efficiently allocate capital.”