AMAC Moves Closer to ESG Disclosure Recommendations

At a recent meeting the SEC’s Asset Management Advisory Committee discussed its progress on formulating recommendations for ESG investment products “in order to create better transparency for investors, and better verifiability of investment products’ ESG strategies and practices.” AMAC’s ESG Subcommittee offered potential recommendations for discussion and to solicit feedback, with the goal of arriving at final recommendations for the SEC at the next AMAC meeting. The panel discussed issuer disclosure of risks and recommended that: (1) The SEC should require the adoption of standards by which corporate issuers disclose material ESG risks; (2) The SEC should utilize standard setters’ frameworks to require disclosure of material ESG risks; and (3) The SEC should require that material ESG risks be disclosed in a manner consistent with the presentation of other financial disclosures. The group also recommended support of best practices, aligned to a more uniform taxonomy for investment product disclosures. With respect to recommendations regarding ESG investment product disclosure, the group recommended that the SEC should suggest best practices to enhance ESG investment product disclosure, including alignment with the taxonomy developed by the ICI ESG Working Group, and clear description of each product’s strategy and investment priorities, including description of non-financial objectives such as environmental impact or adherence to religious requirements. In a statement, Division of Investment Management chief Dalia Blass applauded the subcommittee’s work and submitted questions on the recommendations. For example, she asked why it would be appropriate to look to third-party standard setters who are not regulated by the Commission and whether the group held the view that such third parties be regulated entities. Commissioner Hester Peirce expressed reservations on a disclosure regime for ESG products beyond what currently exists, noting that while she had only cursorily reviewed the ESG Subcommittee’s recommendations, she had concerns. “The concepts surrounding ESG and sustainability are simply too amorphous and open to manipulation and multiple interpretations to lead to a meaningful disclosure regime,” Peirce said.