Less than a day after the SEC proposed a sweeping set of new disclosure rules for money managers, one of the investment industry’s most powerful trade groups is already blasting a key aspect of the plan.
The Investment Company Institute, whose members manage more than $40 trillion globally, came out Thursday against the SEC’s bid to require some funds to disclose the aggregated greenhouse gas emissions of companies they’re invested in. While the ICI signaled support for other aspects of the regulator’s proposal, its swift pushback indicates that the industry may be girding for a legal fight.
“The proposal for some funds to disclose emissions related to their holdings seems to be unworkable — some of the information may not even be publicly available,” said Eric Pan, ICI’s CEO. “As it considers these proposals, the commission must be attentive to the costs of any new requirements — which will be borne by investors — as well as the benefits.”
Pan was responding to a suite of regulatory changes the SEC proposed that broadly aim to crack down on money managers who mislead investors when they claim their funds are focused on environmental, social or governance (ESG) issues. The provision that’s drawing ICI’s ire would require ESG-focused funds to disclose details about “the carbon footprint” of their investment portfolios.
Other less controversial changes would involve expansion of an existing rule to ensure funds labeled ESG invest at least 80% of their assets in a way that lines up with that strategy. In unveiling the plans Wednesday, SEC Chair Gary Gensler said the stepped up requirements would help investors “understand what data underlies funds’ claims and choose the right investments for them.”
On Thursday, Gensler said the proposal was about “truth in advertising.” During an ICI event in Washington, he declined to respond directly to a question from ICI’s Pan about the fairness of requiring funds to disclose greenhouse gas emissions in the supply chain of the companies they invest in, known as Scope 3 emissions, if the firms themselves don’t disclose that information.
“You might be setting up for a future lawsuit, so I’m not going to comment,” Gensler told Pan in response to the question.
A separate proposal by the SEC in March would require some companies to make Scope 3 disclosures in regulatory filings, but that plan is still pending. Gensler insisted that the two plans are separate.