Congressional Democrats Encourage Fund/Adviser ESG Rule Adoption

On May 13, twenty-one Democratic Members of Congress, including Members of the House Committee on Financial Services and the Senate Banking Committee, wrote a letter to SEC Chair Gary Gensler regarding its outstanding proposal to enhance ESG disclosures by funds and advisers (the “Fund/Adviser ESG Rules”).  

Among other points, the letter urged Chair Gensler and the SEC to finalize the Fund/Adviser ESG Rules and recommended that the adopted rules include the following elements from the proposed rules: “(1) only allowing funds for which ESG factors are a significant or main consideration to use ESG language in their names; (2) requiring engagement and proxy voting disclosures for certain funds; and (3) requiring [greenhouse gas] emissions disclosure for certain funds.”  The letter also encouraged the SEC to consider requiring or allowing disclosure of “additional metrics that funds use to implement their ESG strategy,” noting such metrics had been suggested by certain commenters.

On its face, the letter signals continued political support from at least some Democratic lawmakers for a finalized version of the Fund/Adviser ESG Rules. The letter also serves as an implicit reminder of the impending Congressional Review Act (“CRA”) “deadline” by which regulations must be submitted to Congress and posted in the Federal Register ahead of the deadline date so as not to be eligible for repeal by resolution of a subsequent Congress.  As the CRA deadline is determined based on when Congress adjourns and the number of session days in each body of Congress that precedes the adjournment, it is not possible to say with certainty ex ante the CRA deadline date for any given year or session of Congress – though we anticipate the CRA deadline this year will be at some point mid-summer.

This correspondence from the Democratic Members of Congress exemplifies the political salience of ESG-related rulemaking more generally – and thus the possibility that the Fund/Adviser ESG Rules could be subject to a successful CRA resolution in the event of a Republican “sweep” election this fall, whereby Republicans control the House, Senate, and Presidency next January.

With that backdrop, we believe the Chair Gensler-led SEC is likely to aim to adopt the Fund/Adviser ESG Rules in the relatively near term given the impending CRA deadline. Similarly, and as noted in an earlier Viewpoints post, we continue to believe that the SEC’s voluntary stay of the disclosure rules applicable to operating companies will have little effect on the substance or timeline of the adoption of the Fund/Adviser ESG Rules. 

Given the foregoing, we would not expect the letter from Congressional Democrats to be reflective of any substantive or procedural changes for the forthcoming adoption of the Fund/Adviser ESG Rules.  We continue to advise our clients to stay their current course and continue with any steps they are already taking in preparation for the potential adoptions of the Fund/Adviser ESG Rules.

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