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MFA says SEC’s proposed change to ESG disclosures will render the term ‘meaningless’

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The Managed Funds Association (MFA), a trade association for the global alternative asset management industry, has submitted a comment letter to the US Securities and Exchange Commission (SEC) in response to its proposed rule to enhance disclosures of ESG investment practices by investment advisers. 

The Managed Funds Association (MFA), a trade association for the global alternative asset management industry, has submitted a comment letter to the US Securities and Exchange Commission (SEC) in response to its proposed rule to enhance disclosures of ESG investment practices by investment advisers. 

The letter emphasises that the proposed disclosure framework is overly broad and will capture many, if not all, investment strategies under the proposed ESG framework and will render the team ESG ‘meaningless’.
 
The MFA says it supports the Commission’s goal of promoting transparency around investment products and advisers that claim to consider ESG factors. However, the proposed disclosure regime oversimplifies the diverse universe of strategies offered by private fund advisers. By requiring advisers to disclose how they integrate each ESG factor—regardless of how incidental or whether it’s in the context of an ESG strategy – the Commission’s disclosure requirements would create investor confusion by over-emphasising otherwise immaterial factors.
 
To address the concerns with the proposed rule, the MFA calls on the Commission to revise the definitions of “ESG Focused” funds to capture strategies that only use ESG factors as a “primary” or “material” consideration in the investment decision-making process. In addition, MFA suggests the Commission remove “ESG Integration” strategies from the final rule or limit that category to strategies where the adviser promotes and markets the use of ESG factors to achieve non-financial ESG objectives. Additional detail from the letter is available below.
 
MFA raises that requiring advisers to provide disclosures around how they incorporate ESG disclosures—regardless of whether it’s in the context of an ESG strategy—could impede on the Commission’s goal to counter greenwashing by creating investor confusion around the importance of certain ESG factors.

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