SEC Proposes Rules Applicable to Certain Investment Companies and Advisers

July 2022

BY

Tim KvizNational Managing Partner – SEC Services

The SEC recently proposed rule amendments applicable to registered investment companies, investment advisers, and business development companies (“BDCs”) concerning their incorporation of environment, social, and governance (“ESG”) factors into their strategies, services, and/or names.
 

ENHANCED DISCLOSURES REGARDING ESG INVESTMENT PRACTICES

In an effort to standardize disclosure and provide comparable information across ESG-related investments, the proposed amendments would require a fund that considers ESG factors in its investment process to disclose additional information about its strategy. The amount and location of the required disclosures would depend on how prevalent ESG factors are to the fund’s investment strategy. Additionally, certain ESG-Focused 1 funds that consider greenhouse gas emissions as part of their investment strategy would be required to disclose the carbon footprint and weighted average carbon intensity associated with their portfolios.

The proposed rules would be applicable to registered investment companies, BDCs, registered investment advisers, and certain unregistered advisers. The fact sheet is available here and comments are due by August 16, 2022.
 

INVESTMENT COMPANY NAMES

The “names rule” under the Investment Company Act of 1940 requires certain funds to adopt a policy to invest at least 80 percent of their assets in investments suggested by their name. To help ensure a fund’s name accurately reflects the fund’s investments and risks, the proposed amendments would expand this rule to include funds that have terms such as “growth,” “value,” or certain ESG characteristics. Among other items, the proposal would also require disclosure that defines the terms used in a fund’s name and enhance the recordkeeping requirements regarding its compliance with the rules.

The fact sheet is available here and comments are due by August 16, 2022.
 


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1 The SEC considers “ESG-Focused Funds” to be funds for which ESG factors are a significant or main consideration.