ESG Funds Transparency Rule Gets Push From Democratic Lawmakers

A group of 21 congressional Democrats on Monday urged the SEC to finalize a rule aimed at ensuring investment funds don’t mischaracterize their environmental, social, and governance credentials.

The Democrats asked Securities and Exchange Commission Chair Gary Gensler to finish a rule proposed in 2022 that would require managers of mutual funds, exchange-traded funds, and other investment products that are marketed as sustainable to be more transparent about the makeup of those funds. That rule complements another regulation the agency finalized last September that scrutinizes the use of ESG labels on investment funds.

“Finalizing this rule is critical for addressing greenwashing and other exaggerated or unfounded ESG-related claims amongst funds and investment advisers,” the lawmakers wrote in their letter.

The request comes on the heels of another ESG-related disclosure rule the agency finalized in March, requiring companies to report their greenhouse gas emissions. The lawmakers said they were “encouraged” by the climate rules and want the agency to take another step toward increased sustainability disclosure.

The climate rule, however, has been suspended amid litigation in multiple courts.

• The ESG funds regulation the Democrats want completed would require additional, specific disclosures detailing ESG strategies. It would also require environmentally focused funds to show the carbon footprints associated with the portfolio investments.
• Reps. Sean Casten (D-Ill.) and Juan Vargas (D-Calif.), along with Sens. Elizabeth Warren (D-Mass.), Brian Schatz (D-Hawaii), and Tina Smith (D-Minn.), took the lead on the letter.
• The SEC did not respond to a request for comment.