SEC Commissioner Uyeda Delivers Remarks on ESG

At a recent event in California for ’40 Act attorneys, SEC Commissioner Mark Uyeda delivered remarks entitled “ESG: Everything Everywhere All at Once” highlighting the growth and areas of concern within ESG investing. Commissioner Uyeda remarked on the growth of ESG investing, noting “global ESG assets are expected to exceed $50 trillion by 2025, which would represent more than one-third of total projected global assets.” He also notes that ESG funds typically charge higher fees, highlighting that, “revenue from ESG-themed funds grew from $1.1 billion in 2020 to $1.8 billion in 2021.”

Commissioner Uyeda’s noted that “regulators, industry participants, and investors have struggled to define ‘ESG,’” but he posits that existing regulatory structures already exist for ensuring investment advisers fully describe and follow the strategies they utilize. His remarks expressed his concern with attempts by regulators to define ESG and noted that the Commission’s recent rule proposal on climate change “essentially recognizes the fundamental reality that standardized ESG measures are doomed to fail.” He also expressed concern with ESG ratings standards stating “these standards may be intended as a means for asset managers to engage with company management in a broader effort to drive companies to satisfy the criteria of a specific ESG rating service.”

The Commissioner’s remarks also take aim at asset managers that may be using the proxy process as a means to further their own social and political goals. He argues that “changes affecting broad swaths of society are best left to elected officials, accountable to the voters, and not unelected persons like regulators or asset managers.” Commissioner Uyeda’s concluded by noting that the existing regulatory framework already requires investment advisers to “describe precisely what they mean when they offer an ESG fund or product,” and that “any emerging regulations should be careful not to tip the scale in favor of any particular political or social cause.”