On August 16, 2022, Silver’s ESG team submitted a comment letter in response to the SEC’s recently proposed rule on “Enhanced Disclosures by Certain Investment Advisers and Investment Companies about Environmental, Social, and Governance Investment Practices.” This proposed rule has wide-ranging implications for the investment management industry, especially for those fund managers with ESG strategies, practices and/or policies.
While we support the SEC’s efforts to improve ESG disclosure requirements, we see several areas in which the SEC’s proposal may create confusion in the market and lead to other unintended consequences. In our letter, we explore several of these areas in more detail, including fund labeling; Form ADV disclosures; compliance timelines; and alignment with other reporting frameworks and offer our recommendations on how to improve the proposed rule in keeping with the SEC’s mandate to “protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.”
See below for an excerpt from our letter and click here to read the full text on the SEC’s website.
Silver is supportive of enhanced ESG disclosures by investment advisers registered with the SEC and is aligned with the Commission’s view that the rules and regulations under the Advisers Act and Investment Company Act have not resulted in consistent, comparable ESG disclosures across its registrants. Accordingly, enhancements and amendments are not unreasonable as ESG practices continue to evolve in the U.S.
However, as the Commission acknowledges, ESG is a broad term that encompasses a wide variety of actions and activities. Silver recommends the SEC consider the important differences between advisers that demonstrate intentional and systematic ESG practices, and advisers that evaluate an ESG risk or opportunity pursuant to their fiduciary duty. Silver believes it is reasonable for the Commission to enhance disclosure obligations for advisers that demonstrate intentional and systematic ESG practices. Advisers that inadvertently evaluate an E, S, or G factor as a part of their fiduciary duty (e.g., due to the natural relevance of an ESG factor to an investment), should not define or disclose these actions as an ESG practice or activity. Silver believes such disclosure will inevitably lead to investor confusion and will contribute misinformation as the SEC seeks clarity on ESG practices.