SEC Proposes Rules Relating to Registered Funds’ ESG Investments

12 July 2022
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Key takeaways:

  • On May 25, 2022, the SEC proposed two rules relating to Environmental, Social, and Governance (“ESG”) practices by registered funds and investment advisers: (1) one relating to investment adviser and registered fund disclosures (the “Proposed ESG Rule”) and (2) one relating to registered fund names (the “Proposed Names Rule”) (collectively, the “Proposed Rules”). The SEC has requested comment on the Proposed Rules by August 16, 2022.
  • The Proposed ESG Rule would create additional disclosure requirements in fund prospectuses, annual reports, and adviser brochures for certain registered investment advisers, advisers exempt from registration, registered investment companies, and business development companies that offer investors products that consider ESG factors in their investment processes.
  • The Proposed Names Rule would expand on the current requirement that funds invest at least 80% of their assets in accordance with the suggested investment focus of the fund’s name.
  • These Proposed Rules appear to be intended to address potential “greenwashing,” a practice in which a fund or investment adviser, for example, overstates or misrepresents the ESG factors considered or incorporated into portfolio selection, such as in the adviser’s performance advertising and marketing.

We would like to thank summer associates Ryan Katz, Corey Shapiro, and Jennifer Yi for their contributions to this Debevoise In-Depth.