Aug. 5, 2022
To whom it may concern, Environmental, social, and governance (ESG) funds have grown immensely over the past three decades. According to the US Sustainable Investing Forum, investments that incorporate ESG strategies has grown from $639 billion in 1995 to $17.1 trillion in 2020 with a 42% increase from 2018 to 2020 alone. The rate of investor assets flowing into these types of funds reflects the appetite investors have to align their investment strategies not only with their financial objectives but also with their core values and beliefs. There is ample evidence that investors are increasingly taking into account ESG factors when making investment decisions. A recent Morning Consult survey of investors found that 60 percent of all adults determined ESG ratings important when it came to investment decisions. Despite the sheer amount of assets flowing into these funds, there is no standardized ESG disclosure frame work, which has led to confusion and frustration from investors, issuers, and regulators alike. It has also enabled funds and advisers to over emphasize or mislead investors about how their funds incorporates ESG factors. The SEC has recently proposed a rule intended to enhance disclosures by funds and advisers regarding the use of ESG investment strategies. The Proposal, if adopted, would implement a variety of needed improvements to the current fragmented disclosure framework for ESG investment funds. The Proposal would establish a standardized ESG disclosure framework that would create reliable, consistent, and comparable disclosures by ESG funds based on the extent to which a fund considers ESG factors in its investment selection process. Specifically, the Proposal identifies three types of ESG funds: Integration Funds, ESG-Focused Funds, and Impact Funds, each requiring varying degrees of disclosures that correspond to the extent to which a fund utilizes ESG factors in its investment selection process. The SEC has a vital and appropriate role to play in ensuring that investor demand for information about how funds and advisers incorporate ESG strategies into their investment selection process. That role is an integral part of the SECs classic, tri-partite mission of protecting investors, maintaining fair and orderly markets, and facilitating capital formation. The proposed approach by the SEC to ESG disclosure will assist retail and institutional investors, funds, advisers, and regulators by generating reliable, consistent, and comparable ESG disclosures. Thats what Better Markets is advocating and we encourage all interested stake holders to weigh in.