“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…