SEC looks to amend disclosure regime for investment advisers

The US Securities and Exchange Commission (SEC) has proposed a disclosure regime for certain ESG-related funds and advisers to promote consistent, comparable, and reliable information for investors.

The proposed amendments seek to categorise 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.

“I am pleased to support this proposal because, if adopted, it would establish disclosure requirements for funds and advisers that market themselves as having an ESG focus,” said SEC chair Gary Gensler.

“ESG encompasses a wide variety of investments and strategies. I think investors should be able to drill down to see what’s under the hood of these strategies. This gets to the heart of the SEC’s mission to protect investors, allowing them to allocate their capital efficiently and meet their needs.”

The disclosure regime would require funds focused on the consideration of environmental factors to disclose the greenhouse gas emissions associated with their portfolio investments, while ESG-focused funds would be required to describe the specific impact they seek to achieve and summarise their progress.

Moreover, funds that use proxy voting or other engagement with issuers as a significant means of implementing 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.

The new rules follow the SEC’s recent proposal to require companies to disclose Scope 3 emissions.

In March, the SEC moved to ensure companies provide Scope 1 and 2 emissions data, as well as Scope 3 data if such emission are material to investors or if the company had made a commitment that included reference to Scope 3 emissions.

The SEC explained at the time that Scope 3 disclosure “may be necessary to present investors a complete picture of the climate-related risks—particularly transition risks—that a registrant faces and how [greenhouse gas] emissions from sources in its value chain … may materially impact a registrant’s business operations and associated financial performance.”

Commenting on the SEC’s decision Emmi CEO Michael Lebbon recently warned that it could have an impact locally.

“Because Australia is a mining, materials and resources economy that relies on exports, we have significant global exposure and this ruling has the potential to significantly impact business,” Mr Lebbon said.

“Globally, the train has left the station and the US SEC decision shows they are now laying down the law when it comes to carbon risk reporting. The Europeans are at least a decade ahead of the US, and China is moving too,” he continued.

Mr Lebbon underlined that to be globally competitive and operate in an economy that does not see carbon as a viable long-term option, Australia needs to fast-track its carbon transition and be more accountable and transparent in the way it reports carbon risk.