“Fat-Free” ESG: SEC Proposes Rule Changes Related to Fund Names and Fund and Adviser Disclosure Related to ESG Investment Strategies

Introduction

On May 25, 2022, the U.S. Securities and Exchange Commission (SEC), in 3-1 votes, proposed (1) amendments to Rule 35d-1 (the Names Rule) under the Investment Company Act of 1940 (the Names Rule Proposal) and (2) disclosure requirements for registered investment funds and investment advisers related to environmental, social and governance (ESG) investment strategies (the ESG Proposal). The Names Rule Proposal would expand the scope of terms subject to the Names Rule to include those that suggest that a fund focuses on investments that have, or investments whose issuers have, particular characteristics, would set limitations on the ability of a fund to depart from its investment policy under the Names Rule, and would modify certain other requirements of the Rule. The ESG Proposal mandates certain prospectus and/or annual report disclosure for investment companies and Form ADV disclosure for investment advisers that consider ESG as a part of their investment process. The SEC generally proposes a one-year transition period to come into compliance with the rules if adopted. Public comments on the Names Rule Proposal and the ESG Proposal must be received 60 days after publication of each Proposal in the Federal Register. Full article…

Blog Authors

Sara P. Crovitz

Sara Crovitz, most recently Deputy Chief Counsel and Associate Director of the U.S. Securities and Exchange Commission’s Division of Investment Management, provides counsel on all aspects of investment company and investment adviser regulation. She worked at the SEC for 21 years, including 17 years in the Division of Investment Management focusing on issues under the Investment Company and Investment Advisers Acts of 1940. While in the Division, Sara supervised the provision of significant legal guidance to the investment management industry through no-action and interpretive letters, exemptive applications, IM guidance updates and other written and oral means.

William T. Mandia

William Mandia represents financial institutions and insurers in complex commercial and class action litigation. He regularly defends and advises life insurers, intermediaries, banks, broker-dealers, investment advisers, and other financial services providers in connection with sales practices claims arising from a wide range of financial and life insurance products, including, but not limited to, claims for alleged breach of fiduciary duty, fraud, and violations of state consumer protection laws.

Peter M. Hong

Peter Hong uses his many years of service at the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) to guide clients through the various regulatory requirements involved in the offer of financial services and products. His practice includes the registration and regulation of investment advisers, broker-dealers, commodity trading advisers, commodity pool operators, and introducing brokers under federal and state laws, as well as the formation and ongoing compliance obligations of registered and private investment companies.