The move from Viridian and CFS to provide personal advice in a scaled manner highlights a growing willingness within the industry to fix its own problems in lieu of waiting for the government.
Private markets are worth around $14 trillion globally, ASIC believes. It’s not sure, and that uncertainty hints at the wider problem – private markets, and their effect on public ones, is still largely a mystery.
Pressure builds on greenwashing with SEC to tighten screws
It appears that regulators around the world are getting more serious on ESG, with the US Securities Exchange Commission, similar to Australia’s ASIC, announcing a number of proposals targeted at the growing trend of ‘greenwashing’.
The change of Federal Government and clear sentiment from the voting public that more action is required on climate change is occurring at the same time that demand for more sustainable investment products is surging.
Yet one of the biggest challenges for advisers is both understanding what each company or fund stands for, and what level of importance they place on ESG matters. As is typically the case, when confusion reigns and risk of the consumer being mislead grows, the regulator must step in.
This is clearly one of the main reasons behind the SEC’s decision to propose an extension of a long ignored ‘Names Rule’ which governs what mutual funds, ETFs and some advisers can call themselves. Historically, it was focused on say growth, value or global equities, with the requirement to use these terms meaning the fund had to hold at least 80 per cent of companies that fit the profile.
Interestingly, the proposal would extend this to ESG matters, with SEC Chair Gary Gensler saying “A fund’s name is often one of the most important pieces of information that investors use in selecting a fund”.
Under the proposal, the rule would divide funds who seek to be called ESG strategies into three categories:
- ESG Integration funds, which simply integrate ESG considerations into their existing process, and likely represent the bulk of strategies.
- ESG funds, in which ESG factors are the main consideration when selecting what stocks to hold;
- Impact funds, which are required to target a specific, environmental or governance goal and track their progress against it.
Each category would then be required to provide certain, specific related disclosures to ensure they remain true to label. This also formed part of a second proposal, targeted at making ESG reporting more “consistent, comparable and reliable” for investors.
For funds focused on environmental concerns, they would be required to disclose the greenhouse gas emissions of their portfolio. For impact strategies, they would need to describe the specific impact they are seeking to have and report directly against this. And those relying on proxies to create action, would be required to disclose their proxy votes.
Given the highly personalised nature of ESG investing, this is clearly a step in the right direction in arming consumers with more data to make informed decisions.
