Asset managers are urging an investment professionals’ organization to give way to the SEC and scrap an effort to combat greenwashing and other questionable marketing of ESG funds.
CFA Institute, the international group behind the Chartered Financial Analyst designation, has proposed voluntary guidelines on how funds should disclose their environmental, social and governmental (ESG) investing strategies.
Trade groups backed by BlackRock Inc., Vanguard Group Inc., and Fidelity Investments Inc. told CFA Institute that such guidelines are unnecessary and could confuse investors, according to letters CFA Institute recently posted on its website.
CFA Institute’s work comes as concern is growing that asset managers are hawking ESG funds that aren’t necessarily environmentally friendly or socially responsible. Trillions of dollars are up for stake in sustainable investing, depending on how it’s defined.
Asset managers are bracing for, or already have, ESG disclosure guidelines and mandates from the Securities and Exchange Commission and overseas regulators, the Securities Industry and Financial Markets Association and Investment Company Institute said.
“The addition of the CFA Standards to this mix—particularly before some regulatory authorities have determined what actions they might take—further complicates efforts to harmonize disclosure obligations,” ICI said.
The SIFMA and ICI’s letters were in response to a draft of voluntary, global ESG disclosure standards CFA Institute released in May. The proposed guidelines urged funds to disclose the sources and types of ESG information they rely on and report the impact they may have on advancing ESG causes, among other recommendations.
The guidelines, according to SIFMA and ICI, would burden asset managers and could confuse investors. Asset managers already are facing a “complicated road ahead” as the U.S. and other countries consider ESG disclosure requirements, ICI said.
CFA Institute is “carefully considering” comment letters on its draft standards, said Chris Fidler, the group’s senior director of global industry standards, who is spearheading the effort. Investors, regulators, and others want high-quality and consistent ESG disclosures, he said.
The organization has received more than three dozen letters about its draft standards, several of which were supportive. The asset management arms of TD Bank N.A. and the Bank of Nova Scotia were among those that offered some backing.
“CFA Institute believes asset managers have an ethical and professional responsibility to disclose to their clients and prospective clients key information about their investment strategies—and that includes information about how ESG considerations are incorporated,” Fidler said in a statement to Bloomberg Law.
No ESG Mandates
Funds have no ESG disclosure mandates in the U.S., though SEC rules prohibit false or misleading statements about investments.
SEC Chairman Gary Gensler has said current rules are insufficient and is planning to release an ESG fund disclosure proposal by April. Agency examiners this year already have found some fund practices that were inconsistent with their publicly stated ESG approaches.
The SEC’s interest makes it hard for SIFMA and ICI to get behind another organization’s disclosure plan at this point, said Morrison & Foerster LLP of counsel Kelley Howes, who is vice chair of her law firm’s investment management group.
“Until a regulator decides here’s what ESG means, I think the general disclosure obligation as it exists now should capture what the CFA Institute is trying to get at,” Howes told Bloomberg Law.
SIFMA said it was less concerned with the types of disclosures recommended by the voluntary guidelines. Its bigger concern is whether CFA Institute is the right organization to set standards for ESG disclosures, SIFMA said. CFA Institute should at least wait until the SEC is done with its rulemaking, SIFMA said. (Bloomberg Law is an affiliate of Bloomberg LP, which is an associate member of SIFMA.)
“We continue to believe that the SEC is the most appropriate entity to define ESG disclosure parameters and requirements for investment products in the U.S.,” SIFMA said in its letter, which it sent in conjunction with the Asia Securities Industry and Financial Markets Association.
CFA Institute isn’t planning to wait. The group issued a draft of the verification procedures for the ESG disclosure standards on July 21 and set a November deadline to release the final version of its guidelines.
It would be “silly” for CFA Institute not to release the disclosure standards after working on them since 2019, said Alma Angotti, a Guidehouse partner, who has warned clients about greenwashing risks.
Asset managers could use the guidelines to help assure investors that their ESG funds are living up to their claims, she said.
“It’s better to have something than nothing,” Angotti told Bloomberg Law.