SIFMA and SIFMA AMG Criticize SEC ESG Disclosure Proposal
Commentary by Steven Lofchie
SIFMA and SIFMA Asset Management Group ("SIFMA AMG") criticized the SEC's proposed rule amendments that would require certain investment advisers to include ESG-related disclosures.
In separate Comment Letters (here, and here), the associations criticized the proposal for failing to include an explicit definition of ESG. Further, the associations complained that the proposed amendments would impose unnecessary burdens of disclosure on advisers.
Among the suggestions made in the SIFMA AMG letter, SIFMA AMG criticized:
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excessive disclosure requirements as to ESG (as compared to other considerations);
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inappropriate disclosure requirements as to proxy voting;
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subjecting too many funds to requirements regarding greenhouse gas emissions;
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imposing requirements on existing UITs, rather than doing so only on a prospective basis;
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inadequate cost-benefit analysis that increases the likelihood of losing an administrative law challenge; and
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overbroad categorization of ESG-focused funds, particularly as to funds that consider ESG factors as part of a financial value analysis.
SIFMA also discussed the proposal's effects on entities other than investment advisers, including firms providing wrap fee programs and affiliates of investment advisers that provide ESG services. The SIFMA letter also questions the manner in which greenhouse gas emissions are to be calculated, particularly as the calculations are impacted by the derivatives positions into which funds enter.
Commentary
The SIFMA AMG letter makes explicit that the Supreme Court decision in West Virginia v. EPA, which "raises concerns about the Commission’s ability to implement both the Proposal and the Climate Disclosure Rule under the 'major questions' doctrine," threatens this SEC rulemaking. It is likely that the SEC will be defending administrative law challenges concerning this and other proposed rule changes over the next few years. While financial market participants have been historically reluctant to challenge the SEC in court on administrative law grounds, once that Rubicon is crossed as to one rulemaking, there would seem less reason for anyone else not to cross it.