SEC Proposes Rules Covering Fund ESG Disclosures, Names Rule Amendments

In their open meeting, the Securities and Exchange Commission (SEC) voted 3-1 to advance two rule proposals covering the Commission’s rules governing fund names and disclosure requirements for funds with an ESG focus.

The first proposal concerning “Investment Company Names” would require any fund name containing terms that suggest the fund focuses in investments that have particular characteristics such as “growth” or “value” or terms indicating that the fund’s investment decisions incorporate one or more ESG factors to comply with the names rule. Additionally, the proposed amendments would limit temporary departures from the 80 percent investment requirement and modify the rule’s treatment of derivative investments. Of importance to Forum members, the proposal asks whether the board should be informed in writing or if board approval should be required for temporary departure persisting past 30 days, and whether a majority of the independent directors should also approve of the temporary departures from the 80 percent investment requirement.

Click here to read the Commission’s press release.
Click here to read SEC Chair Gensler’s statement on the Names Rule proposed amendments.

The second proposal concerns “Enhanced Disclosures by Certain Investment Advisers and Investment Companies about ESG Investment Practices”. The proposal would categorize certain types of ESG strategies broadly and require funds and advisers to provide more specific disclosures in fund prospectuses, annual reports, and adviser brochures based on the ESG strategies they pursue. Funds that use proxy voting or other engagement with issuers to implement their ESG strategy would be required to disclose information regarding their voting of proxies on particular ESG-related voting matters and information concerning their ESG engagement meetings. Integration Funds with consideration of environmental factors would be required to summarize in a few sentences how the fund incorporates ESG factors into its investment selection process and disclose the greenhouse gas emissions associated with their portfolio investments. ESG-Focused Funds aiming to achieve a specific ESG impact would need to describe the specific impact they seek to achieve and summarize progress on achieving the stated impact by providing an ESG Strategy Overview Table. The Commission’s proposal would also require certain ESG reporting on Forms N-CEN and ADV Part 1A. The proposed amendments would apply to registered open-end and closed-end funds, including ETFs and BDCs, that incorporate one or more ESG factors into their investment selection process.

Click here to read the Commission’s press release.
Click here to read SEC Chair Gensler’s statement on the fund ESG enhanced disclosure proposed rule.

Both rules have a comment period of 60 days after the date of publication in the Federal Register.