The SEC has announced a new Climate-Related Disclosure rule to help standardize environmental reporting impact. Albeit scaled back from initial proposals, the rule moves the US towards more consistent and transparent climate reporting.
Who’s affected?
Effective 60 days after publication in the federal register, and dependent on the firms filing status, the rule applies to U.S. listed companies (or operating companies) which file forms 10-Q and10-K,
While there is no direct impact from this specific rule to registered investment advisers or exempt reporting advisers, the Commission issued a proposed rule for investment advisers back in in May of 2022 that would affect RIAs. This proposal included more specific and detailed disclosure requirements around ESG strategies, additional disclosures around impact and proxy voting or engagements, and ESG focused funds would be required to disclose additional information regarding CO2 emissions associated with their investments.
Whether the SEC will revise the adviser rule remains to be seen. With a number of pending rules in the pipeline, and time running out before the fiscal year end in September, the proposal and final rule may not be materially different.
What should firms be doing now?
For RIAs with ESG/Sustainable strategies, a review of the SEC’s April 2021 Risk Alert is a good place to start. Even if the adviser ESG rule is delayed, the topic remains of interest to the SEC and will continue to be a focus of the Division of Examinations in coming months.
From the outset, compliance departments should be conducting a scoping exercise to understand how their firms are engaging in their space. Where appropriate, this should be followed up with clear ESG and sustainable investment policies, supported by training and testing that can be clearly evidenced when required during an examination.
