The SEC is preparing for a crackdown on investments that profess to be "sustainable" but are not. The financial times' in-depth analysis The U.S. securities regulator is poised to crack down on exaggerated environmental, social and governance credentials in investment products, setting standards for the sustainable fund industry that has reached a boom of nearly $3 billion. Writes the Financial Times. The rules that the Securities and Exchange Commission is preparing would specify the information that investment funds must provide when they have terms such as "ESG", "sustainable" or "low-carbon" in their name. The rules should require information about how ESG funds are traded, how ESG is incorporated into investments, and how these funds vote at annual meetings of companies, according to people familiar with the SEC's reflections. Global assets under management of sustainable funds amounted to $2.77 billion at the end of the first quarter of 2022, up from $1 billion in 2019, according to data provider Morningstar. The broader category of ESG investing includes environmental and climate considerations, "impact" investments for social good, and funds that exclude sectors such as tobacco or firearms. "There is currently a wide range of concepts that asset managers can understand by certain terms and criteria they can use," Gary Gensler, president of the SEC, said in March. Maybe it's time to make it easier to understand if a fund is really what it says it is," he said. The SEC, made up of four members, including Gensler and two other Democratic-appointed members, is expected to vote Wednesday to make the draft regulation public. The agency has already signaled a tougher stance on the issue, announcing on Monday a $1.5 million legal settlement – the first related to ESG descriptions of the funds – against BNY Mellon's investment advisory division, accused of misrepresenting and omitting information on the ESG criteria of mutual funds managed. BNY Mellon said that none of the sustainable funds it offered were targeted by the regulator and that it updated its funds' materials. " Greenwashing is a huge problem and the SEC does well to address it," said Jonathan Macey, a professor at Yale Law School, adding that the regulator's enforcement action against BNY Mellon and its proposals on green definitions "will have a significant impact on mutual fund information regarding ESG." According to Morningstar, 65 funds in the US have been converted back into ESG funds since the beginning of 2019. Funds struggling to attract inflows changed their name and prospect to ride the wave of sustainable investing, said Jon Hale, director of sustainability research for the Americas at Sustainalytics, a Morningstar company. "Many financial advisors are willing to recommend ESG investments if clients request them, but I'm not sure of their ability to discern," Hale said. "Consumers are asking, 'What is it and if it's authentic?'" The SEC's draft rules stems from an ESG market analysis conducted in April 2021. They are based on a "naming rule", adopted in 2001, which requires funds to invest at least 80% of their assets in the manner suggested by the name. For example, an equity fund cannot have more than 20% in cash or Treasury bonds. Jill Fisch, a professor of securities law at Penn Law, warned that "heavy regulation" in a "evolving" field such as ESG "could have a dampening effect on market innovation in this space." Fund information has already become more "expansive" in an industry where there is "no market consensus on what constitutes an ESG fund," he added. These are not standardized products...". A rule that attempts to standardize what constitutes an ESG fund will be a big step backwards for those who want to invest in this space," said Fisch. "Standardization is not the same as clarity." The SEC has also proposed a stricter stance on the disclosure of corporate climate information; In March, the regulator published long-awaited rules that would require public companies to disclose their direct greenhouse gas emissions and have them verified by a third party. The agency did not respond to requests for comment. The Commission is also catching up with European regulators. The EU's sustainable finance taxonomy, which includes a list of environmentally friendly economic activities, is expected to be approved by the European Parliament in July. The Association of Investment Advisors, a trade group, urged the SEC to make room in its ESG proposal for professionals' fiduciary duties to clients. "We would be concerned if the SEC restricted or required trustees to consider any factors, including ESG factors," said Gail Bernstein, IAA general counsel. Jennifer Han, head of global regulatory affairs at the Managed Funds Association, whose members include hedge funds, said: "Any legislation should help provide clarity to alternative asset managers who engage in ESG strategies and be calibrated to the diverse needs of institutional and retail investors." The Investment Company Institute, whose members include mutual funds and exchange-traded funds, declined to comment. (Excerpt from the press review of eprcomunicazione)
Because the SEC will exploit the funds on ESG investments. Ft Report
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