Bloomberg
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Wealth
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BlackRock Warns SEC’s Plans on ESG Disclosures Will Backfire
■ ‘ESG Integration’ label poses
greenwashing risks, firm says
■ Money manager, trade groups want SEC to nix it
from May plan |
By
Silla
Brush
and
Lydia Beyoud
August 19, 2022 at 2:33 PM EDT
BlackRock Inc. is warning US regulators that new rules to fight
greenwashing by fund managers could sow more confusion and make investors think
their holdings are more socially conscious than they really are.
The firm is pushing back on a key
detail in a proposal to require managers to say more about how environmental,
social and governance issues fit into strategies for funds that also consider
myriad other factors. The result, BlackRock said in a letter this week to the US
Securities and Exchange Commission,
could mislead investors about how much ESG really matters when managers pick
stocks and bonds.
Greenwashing is a term critics of
ESG investing coined to describe exaggerated claims by the industry about their
efforts to choose companies that support clean energy. What’s more, mutual fund
and pension managers including BlackRock have been criticized by conservative
groups for putting too much emphasis on ESG because it penalizes certain
sectors, such as oil and gas.
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Gary Gensler
Photographer: Al Drago/Bloomberg |
SEC Chair Gary Gensler and the
agency’s Democratic commissioners proposed new regulations for ESG funds in May
and could finalize them in coming months. The SEC declined to comment on the
letter.
Although BlackRock supports the
SEC’s overall push to clarify asset managers’ strategies, the firm said the plan
to require new disclosures for funds that just consider ESG criteria among many
other factors could muddle the situation. Applying the disclosure requirements
to those “Integration” funds could mislead investors by overstating the
significance of ESG considerations, BlackRock said.
Such disclosures in a prospectus
“would overemphasize the importance of integration, with the unintended
consequence of greenwashing,” BlackRock’s Paul Bodnar, global head of
sustainable investing, and Elizabeth Kent, managing director in the global
public policy group, said in the Aug. 16 letter.
Although the pushback by BlackRock
is similar to that of industry trade groups such as the Investment Company
Institute and Managed Funds Association, it’s unlikely to derail the overall
effort by the SEC to crackdown on ESG labeling that critics say can be
misleading.
In addition to the ESG disclosures
rule, the regulator has proposed requiring funds labeled “ESG” to invest at
least 80% of their assets in a way that lines up with that strategy. Gensler has
also spearheaded a plan to get companies to reveal detailed information about
their greenhouse gas pollution and to outline the risks a warming planet poses
to their operations.
For the past several months, SEC
lawyers have been questioning firms that offer ESG funds about how they lend out
their shares and whether they recall them before corporate elections. The
regulator also set up a task force of enforcement attorneys to focus on ESG and
has sued firms for alleged misconduct.
BlackRock, the world’s biggest asset
manager, told the SEC it doesn’t consider the integration funds to be ESG
products. The Investment Company Institute, which represents mutual-fund
providers and other investment managers, said firms should have more flexibility
in choosing additional ESG disclosures.
The Managed Funds Association said
it also supported the SEC’s goal to promote better disclosure, but warned the
ESG Integration label would be problematic.
“Labeling essentially all funds as
some type of ESG fund would make investors’ comparisons among strategies and
funds more, rather than less, difficult,” the hedge-fund trade group said.
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