While ESG (Environment, Social, Governance) investing is making strong headway in the United States, the SEC (Securities and Exchange Commission) recently approved new proposals to better combat greenwashing.
ESG funds: three asset managers nabbed
The SEC is keen to become more involved in the fight against greenwashing, a marketing method that consists of communicating to the public using the ecological argument. In the space of a few months, the US regulator has opened investigations into three major asset management firms suspected of misleading clients about their ESG commitment.
According to the SEC, BNY Mellon Investment Adviser, from 2018 to 2021, presented or implied through several statements that all investments in its funds had undergone an ESG quality review when this was not always the case. The company was ordered to pay $1.5 million to put an end to the proceedings.
Goldman Sachs is also in the SEC's crosshairs over its ESG funds. The investigation will focus on the bank's mutual fund activities. The bank manages at least four such funds.
Lastly, Deutsche Bank and its asset management subsidiary DWS were raided on May 31 as part of an investigation into suspected deception linked to the ESG classification of certain investment products. The German asset manager is alleged to have wrongly classified products as "sustainable" investments. Under pressure on several fronts, the company's CEO, Asoka Wöhrmann, resigned the same day.
A desire to improve ESG information
Faced with the rise of ESG investing, the SEC has put forward new proposals aimed at promoting " consistent, comparable and reliable " information for investors. Firstly, it requires funds claiming to be ESG to provide information on the criteria taken into account, as well as the strategies used.
Secondly, ESG funds will have to share the data used to achieve their investment objectives, as well as more specific information on their strategy.
The other proposal made by the SEC requires ESG funds to publish relevant information according to their specificities. For example, some would be required to disclose the greenhouse gas emission parameters of their portfolios.
The regulator has also announced its intention to extend the Names Rule to 10,000 funds, compared with the current 8,250. To achieve this, the SEC is proposing to raise the minimum investment policy to 80%. In other words, at least 80% of a fund's assets will have to comply with its name. It remains to be seen whether these measures will be sufficient to curb greenwashing practices, given that ESG fund assets in the US grew by 33% in 2021.