SEC Proposes to Enhance Disclosures About ESG Investment Practices

SEC Proposes to Enhance Disclosures About ESG Investment Practices

On May 25, 2022, the Securities and Exchange Commission (SEC) proposed amendments to rules and forms to promote consistent, comparable information for investors concerning funds’ and advisers’ incorporation of environmental, social and governance (ESG) factors. These changes would be applicable to registered investment advisers, advisers exempt from registration, registered investment companies and business development companies, and would allow investors to see the wide variety of strategies that ESG encompasses. This proposed amendment would also establish disclosure requirements for funds and advisers who have an ESG focus. 


The proposal identifies the following three types of ESG funds and what their proposed requirements would be: 

  • Integration Funds are funds that integrate ESG factors in conjunction with non-ESG factors in investment decisions.  Funds and advisers would be required to describe how ESG factors are incorporated into their investment process.  
  • ESG-Focused Funds are funds for which ESG factors are a significant consideration. Funds and advisers would be required to provide detailed disclosures, including a standardized ESG strategy overview table.  
  • Impact Funds are a subgroup of ESG-Focused Funds that would like to achieve a particular ESG impact.  Funds and advisers would be required to show how it measures progress on its objective. 


This proposal not only seeks to categorize ESG strategies, but also would require funds and advisers to provide specific disclosures in annual reports, fund prospectuses and adviser brochures as well. The information that would need to be disclosed will be based on their ESG focus as well as voting proxies related to ESG matters. In addition to the disclosures required on the aforementioned documents the proposal will also require certain ESG reporting on the following forms to complement these disclosures with reported census-type data:

  • N-CEN: All index funds would be required, regardless of whether the fund tracks an ESG-related index, to report identifying information about the index to include the type of ESG strategy, ESG factors it considers and method used to implement ESG strategy.
  • ADV Part 1A: The intention of proposed changes would be to collect information about an adviser’s uses of ESG factors in its advisory business and would detail the information collected about the advisory services provided to separately managed account clients as well as reported private funds.

All funds would need to submit the ESG related disclosures on these forms in a structured data language (XML) to make it easier for investors and others to analyze this data.

The comment period for this proposed rule amendment will remain open for 60 days after publication in the Federal Register. Full details on the proposed rule as well as a fact sheet can be found on the SEC website. We strive to keep abreast of SEC proposed rules and amendments and will ensure that our Transform™ platform is updated to align with SEC requirements once adopted.