SEC’s Proposed ESG Rules: Nuanced Concerns About Three ESG Categories and Other Form ADV Requirements (Part One of Two)

When the SEC proposed new rules (Proposal) on environmental, social and governance (ESG) disclosures, most private fund managers breathed a sigh of relief that the Proposal was heavily directed at registered funds. Although the requirements for private fund managers are much lighter, a thoughtful review of the Proposal reveals that the requirement to sort all ESG strategies into three categories, along with the other Form ADV disclosure mandates therein, could pose material issues for managers if adopted as written. Therefore, it behooves managers to familiarize themselves with the Proposal and to think critically about how it meshes with their existing ESG strategies, compliance practices and disclosure processes. This first article in a two-part series identifies some of the concerns and potential problems associated with the three SEC-defined categories of ESG strategies, as well as issues fund managers may face when complying with the other Form ADV disclosure requirements in the Proposal. The second article will forecast how the private funds industry will comply with the Proposal, offer tips on how fund managers can prepare to adopt the requirements and estimate the likelihood of the Proposal’s adoption. See “Enhanced Disclosure Requirements and Potential Multi Jurisdictional Considerations Raised by the SEC’s Proposed ESG Rule” (Aug. 2, 2022); and “Core Features of the SEC’s Proposed ESG Rules and the Ethos Driving Its Release” (Jul. 26, 2022).

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