In Pensions & Investments, Brian McCabe Shares Insight on the Impact of SEC Environmental, Social and Governance Proposals

The SEC in May continued its focus on environmental, social and governance (ESG) investing by issuing two proposals to address greenwashing — when a fund or company overstates its ESG offerings. One proposal would require investment advisers and fund managers to disclose additional information on ESG strategies in fund prospectuses, annual reports and adviser brochures. The other proposal would expand the "Names Rule" under the Investment Company Act of 1940, which requires funds with certain names to adopt a policy to invest 80% of their assets in the investments suggested by that name.

Brian McCabe, partner in Ropes & Gray’s asset management practice, told Pensions & Investments that the disclosure proposal's description of an integration fund is broad enough to place nearly any fund under its purview because every fund considers elements of ESG in some capacity.

In regards to the Names Rule proposal, Brian suspects that "you will find fewer people using 'sustainable' terms in their names, as folks are forced to think about what that means. Having 80% invested in something suggested by your name sounds easy until you start trying to figure out what would satisfy a particular term."