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SEC Proposes New ESG Disclosure Requirements for Regulated Funds and Investment Advisers

On May 25, the Securities and Exchange Commission (“SEC”) proposed additional disclosure requirements for funds that utilize Environmental, Social, or Governance (“ESG”) factors as part of their investment decision-making processes. The proposed amendments would require investment advisers and funds that utilize ESG in their investment decision-making processes to include related disclosures in SEC filings, the extent of which would vary based on how ESG factors are incorporated into an investment strategy. Disclosure would be included in the prospectuses and annual reports of registered investment companies and business development companies (“regulated funds”) and in Form ADV for registered investment advisers and exempt reporting advisers (“advisers”).

The proposed amendments categorize certain types of ESG strategies and require regulated funds and advisers to provide more specific disclosures in fund prospectuses, annual reports, and adviser brochures based on the ESG strategies they pursue. The proposed amendments include three classifications of ESG funds: Integration Funds, ESG-Focused Funds, and Impact Funds.  

Integration Funds consider ESG as one non-dispositive factor (alongside other, non-ESG factors) as part of an overall investment strategy.

ESG-Focused Funds utilize one or more ESG factors as a significant consideration in in selecting investments or in engaging with portfolio companies. For example, a fund would be considered to be ESG-Focused if it utilizes screens that will include or exclude certain issuers from its portfolio solely based on ESG criteria.

Impact Funds seek to achieve a specific outcome that is ESG-related. Impact Funds generally seek to target investments that aim to accomplish specific and measurable ESG outcomes.

The level of additional disclosure required would vary depending on which of the above categories a fund or adviser falls into. 

The comment period for the proposed amendments will remain open for 60 days after publication in the Federal Register. The text of the proposed amendments is available at this link:


financial markets and funds, regulatory, esg, climate change