The federal government’s deregulatory environment is in full swing. In addition to the SEC’s now-defunct climate disclosures rule, other SEC actions are being rolled back under the current administration. The SEC’s 2022 “Enhanced Disclosures by Certain Investment Advisors and Investment Companies about Environmental, Social, and Governance Investment Practices” has now been officially withdrawn. The SEC’s website states that:
“The Securities and Exchange Commission (“Commission”) is formally withdrawing certain notices of proposed rulemaking issued between March 2022 and November 2023. The Commission does not intend to issue final rules with respect to these proposals. If the Commission decides to pursue future regulatory action in any of these areas, it will issue a new proposed rule.”
The Enhanced Disclosures Rule was designed to reduce greenwashing in sustainable finance and only applied to funds pursuing ESG strategies. Despite the new administration’s disdain for ESG, it’s interesting that the SEC would limit its opportunities for ESG enforcement. Greenwashing enforcement has been used by anti-ESG in the past to raise the litigation risk of ESG claims like net-zero pledges. At this time it is unclear what, if any, effect the withdrawal of the rule will have on sustainable finance in the US. However, while the Enhanced Disclosures rule has been nixed, the Fund Names rule changes adopted in 2023 remain unchanged for the time being. Even if ESG funds won’t be required to make enhanced disclosures, they will still need to align their ESG investment strategies with their marketing.
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