ESG investment and company names: SEC issues new digital reporting requirements
The US Securities and Exchange Commission (SEC) has this week published two new rules that include XBRL reporting components, both now open for public comment.
A proposal on ‘Enhanced Disclosures by Certain Investment Advisers and Investment Companies About ESG Investment Practices’ would require firms to report on environmental, social, and governance (ESG) information relating to their investment strategies in Inline XBRL format. “The proposed amendments seek to categorize certain types of ESG strategies broadly and require funds and advisers to provide more specific disclosures in fund prospectuses, annual reports, and adviser brochures based on the ESG strategies they pursue,” says the SEC. Where funds purport to achieve specific ESG impacts, they will need to report on their progress, addressing “exaggerated claims about ESG strategies.”
The SEC aims to generate consistent, comparable, reliable and decision-useful disclosures on ESG in the asset management industry. By proposing the use of Inline XBRL, it will ensure the provision of “machine-readable data that investors and other market participants could use to more efficiently access and evaluate ESG funds. We believe that these requirements would provide improved transparency and decision-useful information to investors assisting them in making an informed choice based on their preferences for ESG investing.”
Also released is a proposal on ‘Investment Company Names,’ seeking to curtail misleading or deceptive fund names that may give investors a false impression of fund investments or risks. This would extend and clarify rules requiring certain funds whose names suggest a certain investment focus to direct at least 80% of their assets as such. It would also introduce enhanced prospectus disclosure requirements on the terminology used in fund names and the criteria used to select appropriate investments. The proposals call for this new information to be tagged using Inline XBRL