Glass Lewis weighed in on the U.S. Securities and Exchange Commission’s proposed rules that would require new disclosures from funds and advisers that consider ESG factors. In the context of investors’ growing interest in ESG investing, the Commission’s proposal aims to increase the transparency and comparability of these strategies. Somewhat akin to the EU’s Sustainable Finance Disclosure Regulation (“SFDR”), the proposed rules would do so by, among other things, establishing three categories of funds and requiring different disclosures from funds falling in these categories in their prospectuses and annual reports.
In our August 16 comment letter, Nichol Garzon, Glass Lewis’ Chief Legal Officer and SVP, Corporate Development, commended the Commission for its initiative to standardize and enhance these important disclosures. Glass Lewis noted that institutional investors have increasingly integrated ESG factors into their investment processes and, for many such investors, their approach to stewardship, including their proxy voting and engagement activities, is often a critical element of how they integrate ESG. Glass Lewis generally supported the rules, noting that it “believes the proposed rules’ focus on funds’ and advisers’ proxy voting and engagement will further enhance the transparency of these activities and highlight the diligent and thoughtful decision-making that institutional investors are already dedicating to their governance programs.”
At the same time, Glass Lewis raised practical concerns about the new quantitative disclosures ESG-focused funds would have to make on their proxy voting and engagement meetings. The comment letter explains that complexities and ambiguities in the proposed proxy voting metric could prevent it from presenting a comparable and accurate picture of a funds’ voting on relevant ESG issues. Glass Lewis encouraged the Commission to consider simplifying the reporting process and making any required quantitative metric as objective as reasonably possible.
Glass Lewis also raised issues about the Commission’s proposal that ESG-focused funds report “the number or percentage of issuers with which the Fund held ESG engagement meetings and total number of ESG engagement meetings.” Glass Lewis encouraged the Commission to consider whether its narrow, proposed definition of an “ESG engagement meeting” adequately reflects the range of activities shareholders and their representatives undertake to substantively and meaningfully engage with companies on relevant ESG issues.
You can download our full response here:
