While markets await new prescriptive disclosure requirements for climate risk and human capital metrics, SEC Chairman Gensler has highlighted an important subtext of his ideal rules – if you say it, you should have to prove it.
In addition to requiring companies to provide new metrics and risk discussions, the SEC is also looking at new rules for investment funds that market themselves as ESG, green, or low-carbon. In a speech to the European Parliament which covered a broad range of potential SEC regulations, Mr. Gensler highlighted that he has asked SEC staff “to consider recommendations about whether fund managers should disclose the criteria and underlying data they use to market themselves as [environmentally conscious].”
Misleading statements or advertising can be explosively risky. The US Justice Department and the SEC are investigating DWS, Deustche Bank’s asset management arm, for false ESG claims. According to the Wall Street Journal, the allegations focus on marketing statements that more than half of total investments were screened for ESG considerations, but internal documents showed only a fraction of holdings were subject to ESG integration process.
The SEC is considering enhanced disclosure rules related to company statements, too. Mr. Gensler has publicly discussed the use of “net-zero” commitments several times in public speeches. Recognizing that 92% of the S&P 100 plan to set emission reduction goals and the increased use of “net zero” commitments, the SEC is considering which disclosures a company should be required to make in light of such commitments. Does the “net zero” commitment cover Scope 1, 2, or 3 emissions? Further, if a company operates in a jurisdiction that has committed to abide by an emissions reduction agreement, such as the Paris Agreement, it should disclose what data or metrics it is tracking to meet the jurisdiction’s requirements. Given the enormous amount of money being moved into “sustainable investing,” it is clear the SEC wants to ensure that fund investors are not being misled.
