The US Securities and Exchange Commission (SEC) has officially withdrawn its proposed rules aimed at curbing “greenwashing” – the practice of making exaggerated or misleading claims about environmental, social, and governance (ESG) investment strategies. These rules, initially put forth in 2022, sought to significantly enhance disclosures from investment advisers and companies offering ESG-focused funds.
The proposed “Enhanced Disclosures by Certain Investment Advisers and Investment Companies About Environmental, Social, and Governance Investment Practices” rule was designed to bring much-needed standardization and transparency to the ESG investment landscape. Key aspects included:
- Standardizing and detailing ESG strategy disclosures in critical fund documents.
- Preventing misleading claims about the environmental or social impact of investments.
- Requiring the disclosure of greenhouse gas emissions metrics (like carbon footprint) for environmentally focused portfolios.
- Facilitating fund comparison through standardized, tabular data presentation.
The SEC’s decision to pull these proposals, along with other regulatory initiatives from the previous administration, signals a notable shift in its approach to climate and ESG-related regulation. This move comes amidst increasing legal and political opposition to such financial regulations. The SEC has clarified that it does not intend to finalize these specific proposals and any future regulatory action would necessitate new rule-making.
Despite the federal withdrawal, several important considerations remain for companies and investors:
International parallels exist: Jurisdictions like the United Kingdom have already implemented similar anti-greenwashing rules (e.g., the FCA’s Sustainability Disclosure Requirements).
General anti-fraud rules still apply: Companies are still liable under existing anti-fraud statutes for any material misstatements or omissions regarding their sustainability claims.
State and international compliance is ongoing: US public companies may still be required to comply with climate disclosure laws at the state level (e.g., California’s recent laws) and international mandates (e.g., the EU’s Corporate Sustainability Reporting Directive).
