The Securities and Exchange Commission needs to simplify proposed rules to require more disclosure from funds touting their environmental, social and governance factors, or else the agency will fail to eradicate so-called greenwashing, investment and advocacy groups are warning.
Investors of all sizes, including ESG-focused ones, as well as financial advisers and portfolio screeners, agreed that the agency has the proper intent in wanting more clarity from funds that claim sustainable factors. In a series of comment letters filed this week, however, the firms spelled out concerns that the rule as currently written would create confusion, increase compliance costs, and could allow funds to create a false impression of sustainability levels, or greenwashing, a practice in which a firm overstates its environmental concern.
The SEC voted 3-1 in May to propose requiring mutual and exchange-traded funds purporting to consider ESG factors to provide investors information about those factors, their strategies, and the criteria used to achieve their investment goals. SEC Chairman Gary Gensler said at the time that the proposal will help investors better understand what funds and advisers mean when they claim to be sustainable.
