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SEC proposes new ESG disclosures for investment advisers and investment companies

Insight 18 August 2022

SEC proposes new ESG disclosures for investment advisers and investment companies

On May 25, 2022, the Securities and Exchange Commission (SEC) proposed changes to disclosure requirements for investment funds focusing on Environmental, Social and Governance (ESG) initiatives, aimed at promoting “consistent, comparable and reliable information for investors” regarding ESG-focused investment strategies. The proposed changes would apply to registered investment companies, business development companies, registered investment advisers and certain unregistered advisers.

If adopted, the new rules would enhance disclosure by:

  • Requiring additional disclosure requirements regarding ESG strategies in fund offering documents, annual reports and brochures;
  • Incorporating a layered disclosure approach for ESG funds to provide investors with the ability to compare ESG funds at a glance; and
  • Requiring certain environmentally focused funds to disclose the greenhouse gas (GHG) emissions associated with their portfolio investments.

Given the broad reach of the proposals as they currently stand, it’s critical that advisers take the time to familiarize themselves with the new rules and anticipate a considerable shift in how they market their products and disclose information to investors and the SEC.

Here’s a brief breakdown of the proposals and what they could mean for firms offering ESG-focused investments:

The proposal would require funds that incorporate ESG factors into their investment process to disclose additional information regarding their strategy. How much information is required to be disclosed depends on how central ESG factors are to a fund's strategy and follows a 'layered' framework with a concise overview in the offering memorandum supplemented by additional details if needed. The proposal separates funds that consider ESG factors into three categories:

  • Integration Funds: Funds that fall into this category would be required to disclose how ESG factors are incorporated into the investment process.
  • ESG-Focused Funds: Funds for which ESG factors are a significant or primary consideration would be required to provide detailed disclosure, including a standardized ESG strategy overview table.
  • Impact Funds: A subset of ESG-Focused funds that seek to achieve a particular ESG impact would be required to disclose how it measures progress on its objective.


Under this proposal, advisers would be required to make similar disclosures in their brochures regarding the consideration of ESG factors in investment strategies, the methods of analysis employed, and detail certain ESG information in annual SEC filings.

Some ESG-focused funds would be required to provide additional information about their strategies, such as the impacts they seek to achieve and key metrics to assess their progress. The proposal would require funds that use proxy voting or engagements with issuers as a means of implementing their ESG strategy to provide additional information about their proxy voting or ESG engagements.

The proposal would require ESG-focused funds to disclose additional information regarding the GHG emissions associated with their investments, specifically, the carbon footprint and the weighted average carbon intensity of their portfolio. The requirements are designed to meet the needs of investors seeking environmentally focused fund investments, including the request for consistent and comparable quantitative information regarding the GHG emissions associated with their portfolios so they can make decisions aligned with their own ESG goals.

Funds that disclose that they do not consider GHG emissions part of their ESG strategy would not be required to report this information. Integration funds that recognize GHG emissions would be required to disclose additional information about how the fund considers GHG emissions.

The SEC also proposed amendments to Rule 35d-1 under the Investment Company Act of 1940 (the “Names Rule”), placing new requirements on investment funds with a name that suggests an ESG-focused investment strategy. The Names Rule currently requires funds with certain names to invest 80% of their assets in investments that are aligned with their fund name. The proposed amendments would extend the Names Rule to any fund name with terms suggesting the fund focuses on investments with ESG-related characteristics. ESG-related fund names would be subject to the 80% requirement because their name suggests that they are invested in investments with ESG characteristics.

“What we’re trying to address is truth in advertising,” SEC Chairman Gary Gensler said at a press conference following the announcement of the proposals, adding that “a fund’s name is often one of the most important pieces of information that investors use in selecting a fund.”

In anticipation of the new rule, advisers should carefully review the proposal to determine specific disclosure requirements related to their strategy and prepare data that details exactly how that strategy is being implemented.

What actions are required?

While the proposal has yet to be finalized, adequate preparation to comply with the SEC’s new rule should become a priority for any firm utilizing an ESG strategy. Advisers should evaluate how the proposed amendment and the SEC's focus on ESG will affect them and take tangible action steps to ready themselves for a version of the proposed amendments to pass.

The comment period for each proposed amendment will remain for 60 days after publication in the Federal Register. If adopted, the compliance date would fall one year after the amendments become effective.

How can Sanne help?

As a PRI Signatory, Sanne is committed to integrating ESG considerations into investment practices. We are a leading fund administrator offering ESG advisory and reporting services. We have experts in Real Assets, Private Equity, Private Debt and Corporate Services who each have a proven record in administering ESG funds and asset holding vehicles. Our North America business offers a full range of fund and corporate services, let’s talk to see how we can assist you.

As a leading global fund solutions provider, Sanne offers a breadth of services that extends beyond the back office, including Regulatory Compliance, ESG Advisory Services, Corporate Services and Management Company Services. We have experts in Real Assets, Private Equity, Private Debt, Hedge and Corporate Services who have a proven record in administering ESG funds and asset holding vehicles. Our Regulatory Compliance team has experience in helping private fund managers define, implement and maintain a rigorous compliance framework to ensure compliance with regulators. As a PRI Signatory, Sanne is committed to integrating ESG considerations into investment practices. Let’s talk to see how we can assist you.

For additional information, or to discuss any of the topics highlighted above, please get in touch with our people directly.

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ESG Services
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Karlien De Bruin Global Head of ESG - South Africa
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Daryoush Niknejad General Counsel, North America - Dallas
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Michael Barakat Assistant Director - Dallas
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Paul Séjournant Director, Product Development - United Kingdom
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