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Sierra Club Calls for Stricter Rules for ESG Integration Funds

US-based environmental non-profit Sierra Club has urged the US Securities and Exchange Commission (SEC) to impose tighter restrictions on the marketing of ESG investments by asset managers. In June last year, the SEC proposed a new ESG Disclosure Rule, with Sierra Club advocating for stricter guidelines on asset managers promoting ESG-related attributes in certain investment vehicles, specifically ESG integration funds. These ESG integration funds claim to consider ESG factors in their investment and engagement decisions, but the Sierra Club is calling for the SEC to mandate detailed disclosures to substantiate these claims. “The SEC should ensure that any marketing of specialised ESG expertise or strategy, explicit or implicit, be limited to ESG-focused and impact funds. Allowing ESG integration funds to reference consideration of ESG factors in the context of a discussion of their fiduciary duty to consider all material risks may be appropriate,” the comment letter reads. “However, the SEC should prohibit ESG integration funds from using ESG labels or engaging in any other marketing that suggests the asset manager is providing specialised ESG expertise or services to investors. When undertaken by ESG integration funds, such marketing is fundamentally misleading.The Sierra Club praised the SEC‘s recent implementation of the Fund Names Rule, which regulates how investment funds should be named to prevent misleading investors. However, it noted that the SEC’s decision to delay action on ESG marketing by ESG integration funds has raised concerns. The Sierra Club said the SEC should limit ESG-related marketing to two other types of investment funds: ESGfocused and impact funds.  

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