Enhanced Disclosure Requirements and Potential Multi‑Jurisdictional Considerations Raised by the SEC’s Proposed ESG Rule

The SEC recently proposed a rule (Proposed Rule) that, if adopted, would require PE sponsors and other SEC‑registered investment advisers to include new narrative disclosures in their Form ADV, Part 2A brochures on environmental, social and governance (ESG) factors they consider when implementing their investment strategies, as well as report census-like information in Form ADV, Part 1A about their ESG strategies. The Proposed Rule, together with related proposed amendments to the so-called “Names Rule,” also includes provisions that would enhance ESG disclosure requirements for open-end and closed-end registered investment companies and business development companies. The proposed amendments applicable to registered investment funds have the potential to influence practices in the private funds market. In a guest article, Kirkland & Ellis partners Mary Beth Houlihan, Daniel Kahl and Ruth Knox provide an overview of the Proposed Rule’s impact on private fund managers, as well as proposed rule amendments for registered funds that have the potential to influence investor and regulator expectations for private funds. The article also compares the Proposed Rule to the E.U.’s Sustainable Finance Disclosure Regulation; discusses the Proposed Rule’s treatment of greenwashing; and offers tips for how private fund managers can leverage the Proposed Rule to enhance their compliance policies and processes around ESG to mitigate the greenwashing enforcement risk of today and prepare for the potential regulatory changes of tomorrow. For more from Kirkland & Ellis attorneys on ESG, see our two-part series on mitigating climate risk: “Advantages to PE Firms Pursuing Climate Risk Programs and Pitfalls to Avoid” (Jun. 30, 2020); and “Solutions for PE Firms to Develop a Physical Climate Risk Program” (Jul. 14, 2020).

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