Oct. 27, 2022
October 27, 2022 The three categories in which the SEC intends to classify \"ESG funds\" needs to be revised (Integration Funds, ESG Focused Funds, Impact Funds) by excluding impact funds. Note that ESG itself is not an investable entity. When the term \"ESG fund\" is referenced, what most mean is ESG-focused, ESG-labeled, ESG-oriented, ESG-marketed funds. The hypen and modifier is incredibly important to underscore that one cannot \"invest\" in ESG. It's a tool that investors can use to identify risks and opportunities. ESG is typically divided into two categories: corporate ESG and asset management ESG. In asset management, the three common approaches to sustainable investment strategies are SRI (socially responsible investments coined in circa 1850s when the Quakers excluded investments counter to their values and is a values based investment approach), ESG (environmental, social, and governance coined in circa 2004 by the United Nations via the \"Who Cares Wins\" report and has four key approaches- thematic, active engagement, esg integration, and best in class), and finally Impact Investments (coined in 2008 by the Global Impact Investing Network in Bellagio, Italy through funding by Clinton Global Initiative and Rockefeller Foundation as investments that have measurable social/environmental benefits alongside a financial return). It is categorically wrong/imprecise to include impact investments as a form of ESG. As result, I recommend the SEC re-think its proposed classification of mixing impact investment with ESG to avoid causing more confusion to the public. A necessary pre-condition to regulation of ESG-focused funds is understanding that they are not impact funds. Supporting work includes: https://www.pionline.com/industry-voices/commentary-primer-evaluating-impact-investment-managers and pitchbook, which looks at the ecosystem similarly. https://pitchbook.com/blog/what-are-the-differences-between-sri-esg-and-impact-investing and more about impact investing can be found on the GIIN website https://thegiin.org/impact-investing/