What do “Green” and “Sustainable” mean? SEC to Consider New Fund Data Disclosure Requirements

Akin Gump Strauss Hauer & Feld LLP

Gary Gensler, Chair of the U.S. Securities and Exchange Commission (SEC), has asked the SEC staff to consider issuing new rules that would require fund managers to disclose the criteria and underlying data used in marketing such funds as “green”, “sustainable” and “low carbon.”

During the SEC’s Asset Management Committee meeting held on July 7, 2021, Chair Gensler emphasized the importance for investors to have a clear understanding of what is meant by terms like “green” and “sustainable” when used by funds to market themselves or their products using those or similar terms.  Chair Gensler underscored the lack of standardized meanings in the capital markets for such sustainability-related terms.

Chair Gensler explained that the SEC would align these potential rules with its ongoing efforts to update disclosure requirements on, among other things, climate risk and human capital for public companies. Chair Gensler’s comments are consistent with the SEC’s agency-wide focus on the use of, and regulation of, environmental, social and governance (ESG) considerations in the broader financial markets.

Chair Gensler also asked the SEC staff to take a holistic look at naming conventions for funds that market themselves as committed to investment strategies and products that focus on ESG-related factors.

Finally, Chair Gensler emphasized the importance of diversity and inclusion, including disclosure requirements with respect to a fund’s demographic information about employees and owners and its diversity and inclusion practices in selection of other advisers.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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