Wall Street regulator eyes increase in disclosure for ‘green’ fund managers

The Securities and Exchange Commission (SEC) is eyeing an increase in disclosure for “green” fund managers.

SEC Chair Gary Gensler made the announcement during a meeting Wednesday meeting with the European Parliament’s Committee on Economic and Monetary Affairs.

 Appearing virtually before the panel, Gensler said he’s asked his staff to come up with recommendations on investment funds that brand themselves as “green,” “sustainable,” and “low-carbon.”

“I’ve also asked staff to review current practices and consider recommendations about whether a fund manager should disclose criteria underlying when they call themselves ‘green’ and ‘sustainable’ and the like,” Gensler said.

Demand to invest in funds that focus on sustainability— known as environmental, social and governance (ESG)— have reached new heights. According to Reuters, assets in these funds reached a record $1.7 trillion in 2020.

ESG funds often choose companies for investments based on a stated commitment to at least one of the three criteria.

But the SEC advises that not all ESG funds are the same, and that some factors used by these funds are not defined in federal security law.

The agency further advises that some ESG funds may focus more heavily on one of the three standards, adding that there is no SEC “rating” or “score” that can be applied across companies.

Gensler told the panel that the agency was looking into “what stands beneath” such funds. He said the U.S. has a “basic bargain” that investment funds don’t defraud the public.

“We have a basic tenet and a basic bargain that you don’t defraud the public. So, if you say that you’re fat-free milk in a grocery store, what stands behind that it’s fat free milk?” Gensler said.

“So here, it’s ‘what stands behind that claim that it’s green, sustainable, and the like?’ And we are going to try to put more clarity on that, both qualitative and quantitative disclosures,” he continued.