The SEC announced earlier this week that it is proposing to amend rules and forms to require registered investment advisers, certain advisers exempt from registration, registered investment companies and business development companies to provide additional information regarding their environmental, social, and governance (“ESG”) investment practices. The SEC stated that the purpose of the proposed amendments to the forms and associated rules is to facilitate enhanced ESG disclosure to clients and shareholders.
The disclosure requirements would apply to advisers and funds that market themselves as having an ESG focus and require them to provide more specific disclosures in fund prospectuses, annual reports, and adviser brochures based on the ESG strategies they pursue. For example, the proposal would require an adviser to provide in Item 8 of its brochure (Form ADV Part 2A) a description of the ESG factor or factors it considers for each significant investment strategy or method of analysis for which the adviser considers any ESG factors. Advisers would also have to describe in Item 10 any material relationship or arrangement with any related person that is an ESG consultant or other ESG service provider. In Item 17 of their brochures, advisers that have specific voting policies or procedures that include one or more ESG considerations when voting client securities would have to include a description of which ESG factors they consider and how they consider them.
Advisers would also be required to provide ESG reporting in Form ADV Part 1A.
Next Steps
The SEC will seek comments regarding these proposed rules. Once comments have been reviewed, a final rule and adopting release may be issued.
A copy of the proposed rule can be found here.
For more information about the proposed rules discussed above, please contact NCA Compliance.Hayley Nelson is the President and Principal Consultant of NCA Compliance, Inc., a compliance consulting firm providing a wide range of customized compliance solutions for investment advisors. Ms. Nelson previously worked for the Securities and Exchange Commission and a large investment manager in New York.
