MFA Responds to SEC ESG Disclosure Proposal

The Managed Funds Association ("MFA") criticized the SEC's proposal to require that investment advisers include ESG disclosures in financial reports, saying that the disclosure may cause unintended "greenwashing" and is a "problematic and material departure from the existing SEC disclosure framework."

In response to a comment request, the MFA asserted that the proposal does not provide clear guidance on how to differentiate between the various ESG factors that advisers would be required to consider, which could effectively qualify all investment strategies to be ESG-related strategies. Additionally, the MFA argued that the proposal would create significant additional compliance.

To address these issues, the MFA urged the SEC to consider:

• including a "good faith" standard in the proposal that would help determine how to classify investment strategies;
• revising the definitions to qualify as "ESG-Focused" and remove the class "ESG Integration" altogether;
• applying a "materiality standard" to the Form ADV requirements and clarifying what constitutes a "material strategy"; and
• ensuring the final rule is consistent with other SEC climate-related disclosure rules.