SEC Chair Gary Gensler is making clear that he is laser-like focused on ESG and the asset management industry. On July 7, 2021, Chair Gensler "shared some thoughts" in public remarks to the SEC's Asset Management Advisory Committee about two matters attracting a great deal of attention, both of which he has asked the SEC Staff to consider further: (1) disclosures by funds focusing on sustainability investing, and (2) diversity in the funds industry.
Chair Gensler noted that there is a range of what funds mean when they say that they are "green," "sustainable," or "low carbon." He said that basic truth in advertising principles are relevant but in fact, there is no standard definition for these terms, and Chair Gensler thinks investors ought to be able to drill down "to see what's under the hood of these funds." Chair Gensler revealed that he has asked the SEC Staff to consider whether fund managers should disclose the criteria and underlying data they use to arrive at these labels, and that this consideration will be part of the SEC's larger project involving potential updates to climate risk and human capital disclosures by public companies.
In addition, Chair Gensler referred to the Committee's concern that women and people of color remain significantly underrepresented in fund industry ownership and management. He said that a "key first step" at improving industry practices is to look to transparency. As a result, he has asked the SEC Staff to review whether transparency about diversity and inclusion in the asset management industry can be enhanced.
While there is not agreement on the need (or propriety) of further regulation mandating ESG-related disclosures, Chair Gensler has made ESG-related disclosures a key part of his priorities. Market participants should continue to keep a keen eye out for what comes next.
Together, I think updates to fund disclosures and to naming conventions could bring needed transparency to the asset management industry, particularly in light of the significant growth in the sustainability area. This gets to the heart of the SEC’s mission to protect investors and efficiently allocate capital.