NACS Comments on SEC Proposed Rules to Curb Misleading ESG Funds

The commission’s proposal “creates unwieldy economic burdens.”

June 23, 2022

A Sustainable World

ALEXANDRIA, Va.—NACS has submitted comments on the two proposed rules the U.S. Securities and Exchange Commission (SEC) put forth last month aimed to mitigate misleading or deceptive claims by U.S. funds on their ESG qualifications and increase disclosure requirements for those funds.

The proposed changes would apply to certain registered investment advisers, advisers exempt from registration, registered investment companies and business development companies.

NACS has strong concerns about the proposal and the negative impacts it would have for its members with publicly traded equity and debt securities, as well as those that are entirely privately held and not subject to SEC regulation.

“The industry takes seriously its role in reducing carbon emissions and recognizes that structure and consistency in reporting are helpful goals,” said NACS in the letter. “In our view, however, the proposal exceeds the SEC’s statutory authority, conflicts with its mission, creates unwieldy economic burdens even on businesses entirely outside of its jurisdiction, and sets a precedent that would take securities regulation into a political sphere that would be harmful to the SEC and the future of regulation of the markets.”

The U.S. Small Business Administration (SBA) also filed comments on the two rules, encouraging the SEC to publish a Supplemental Initial Regulatory Flexibility Analysis and to reconsider the breadth of its Scope 3 GHG disclosure rules.

“We urge the SEC to further analyze the impact of the proposed rules on all impacted small entities and explore additional regulatory alternatives before proceeding to a final rule. This analysis should be published in a supplemental IRFA to provide small entities an opportunity to comment. Additionally, Advocacy recommends that the SEC reconsider the breadth of its Scope 3 emissions disclosure to ease the burden of the proposed rules on small, private businesses,” wrote the SBA in its comment letter.

The proposed amendments seek to categorize certain types of ESG strategies broadly and require advisers to provide more specific disclosures in fund prospectuses, annual reports and adviser brochures based on the ESG strategies they pursue.

In March, the SEC proposed rules that would require publicly traded companies to disclose their ESG plans. The proposed rules state that companies must show to investors how certain climate-related risks can affect their finances. Some companies also will need to disclose their emissions, which includes data from their suppliers and customers.

To fully understand the drivers behind ESG planning and reporting, the Fuels Institute published a white paper that provides a history and outlook on ESG to help guide businesses. Download the Fuels Institute white paper “The Case for Developing an ESG Plan.”

A recent Convenience Matters podcast episode explores ESG planning, and the NACS Magazine article “Challenge or Opportunity” looks at how ESG is affecting the convenience retailing industry.