Legal Considerations
in Responsible Investment

SEC Votes 3-1 on Climate Change Disclosure Rules

On May 25, 2022, the SEC voted 3-1 in favor of proposed rules that will require public companies to disclose climate-related data in their filings such as their greenhouse gas (GHG) emissions. The public has until June 17, 2022 to submit comments before the SEC edits the rules and conducts its final vote.

As shared in a previous post, on March 21, 2022, the SEC proposed amendments to its rules under the Securities Acts of 1933 and 1934 in a notice titled, “The Enhancement and Standardization of Climate-Related Disclosures for Investors” (File No. S7-10-22), which would require reporting companies to disclose climate-related information in their SEC filings. The rules – precipitated by the SEC’s concerns of greenwashing by investment advisers and investment companies – would divide ESG funds into three categories: (1) integration funds, which integrate ESG factors alongside non-ESG factors; (2) ESG funds, where ESG factors are the main consideration when selecting securities; and (3) impact funds, which target a specific environmental, social or corporate governance goal. In turn, each of these three categories would be required to provide different types of disclosures based on their marketing tactics. 

On May 25, 2022, the SEC voted 3–1 on the proposal. Hester Peirce, the only opposing commissioner, has taken the position that the proposal is: (i) unnecessary because existing laws and rules can adequately address greenwashing; (ii) “incapable of enforcement on a practical level” beause “E,” “S,” and “G” are too vague and overbroad; and (iii) outside “the Commission’s statutory limits” prescribed by Congress. Conversely, those that voted in favor of the proposal – notably, SEC Chair Gary Gensler – have long urged that “ESG” is in need of consistent criteria that investors and asset managers alike can heed when understanding how to classify investment strategies. Further, Gensler has stated that his support for climate-related disclosures is “guided by the concept of materiality” under the federal securities laws and therefore believes that the new disclosure rules are imperative for investor protection.

ESG assets are continuing to become more mainstream and currently account for approximately 10% of the fund assets worldwide. According to a Bloomberg Intelligence estimate, global ESG assets are likely to hit $41 trillion by the end of 2022.

The deadline for public comment before the SEC edits the rules and conducts its final vote on the implementation of the rules is June 17, 2022.

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