Jul. 03, 2022
July 3, 2022 Mohammed Ali Rashid's Comments on The Importance Of ESG And How It Helps Ensure Truthful Assessments Of Company Standards The main function of the Securities and Exchange Commission is to protect investors. Without the SEC, investors can easily lose their investments because many players in the market love playing dirty. Over the years, there have been endless cases of insider trading, publication of false or incomplete information by companies, and many other types of illegal actions committed by company executives, stock brokers, fund managers, and the like. The Securities and Exchange Commission is constantly reviewing its policies to make the market safer for all actors, especially investors. The Securities and Exchange Commission recently made proposals to enhance disclosures by certain fund managers, investment companies, and investment advisers about ESG investment practices. Environmental, Social, and Governance strategies should be transparent and honest with a companies shareholders. As any deal Mohammed Ali Rashid does with clients are always transparent. When looking for a suitable investment, many investors nowadays look at social, environmental, and governance issues in addition to financial factors. It is worth noting that ESG issues have become an important barometer of long-term returns and the long-term survival of a company. A company's ESG performance is often monitored by investors, media, the public, employees, and partners. This means that a company's ESG strategy can have a big impact on its ability to attract investors, partners, and employees as well as its ability to survive long term. That is why many investment advisers, investment companies, and fund managers may want to provide incomplete or false information on the ESG strategies they are pursuing. In a bid to promote fair play in the industry, the Securities and Exchange Commissi on has made numerous proposals. The Securities and Exchange Commission is seeking to amend rules on reporting of ESG strategies as well as the forms used to make these reports. The main goal is to make sure that consistent, comparable, and reliable information is available in the public domain for investors to use when making investment decisions based on ESG strategies used by the companies they are interested in. The proposed changes would apply to certain registered investment companies, registered investment advisers, business development companies, and advisers exempt from registration. According to Gary Gensler, the chairman of the SEC, the proposed changes, if adopted, would establish disclosure requirements for advisers and fund managers who use ESG strategies as their selling point. Since ESG encompasses a wide range of strategies and investments, Gary believes that it would be great if investors can drill down to find out what is under the hood. By ensuring investors have all the information they require to make informed decisions, the SEC proposals will help in protecting investors, which is SEC's core mandate. The proposed amendment seeks to: 1. Broadly categorize certain types of ESG strategies. 2. Require investment funds and investment advisers to make specific disclosures about the ESG strategies they pursue in their annual reports, brochures, and fund prospectuses. 3. Make certain ESG reporting on forms ADV Part 1A and N-CEN. These forms are normally used to submit census-type data to the SEC to facilitate the commission's disclosure review, examination, policy-making, regulatory, and enforcement roles. What are the Expectations? Once published in the Federal Register, stakeholders in the industry and the general public will have 60 days to submit their views on the proposed amendments. The following are some of the expectations of the SEC-proposed amendments: - If a fund claims to be able to achieve a specific ESG impact, the managers would have to list the specific impacts the fund seeks to achieve and make a summary of the progress made in achieving those impacts. - If a fund is focused on environmental considerations, the managers would be required to disclose the greenhouse gas emissions associated with their investment portfolio. - If a fund utilizes proxy voting or other types of engagement with issuers as a way of implementing their ESG strategies, the managers would be required to make disclosures regarding their voting of proxies on specific ESG-related issues. Information regarding ESG engagement meetings would also be a requirement. The Importance of Having an ESG Strategy The modern investor is concerned about global warming, corporate governance issues, and how a company relates with the community, its customers, and employees. Since there are many other investment options available to them, they often consider ESG strategies before making investment decisions. For instance, they check the amount of greenhouse gas emissions associated with a given company, the CSR projects implemented as well as how a company scores on governance issues. The SEC proposals help to ensure fund managers, advisers, and investment companies make relevant detailed ESG disclosures for the benefit of investors. As a result, it would be much easier for investors to analyze the ESG strategies of a company and make an informed decision on whether to invest in it or not. It is important to note that ESG strategies are strongly-linked to the long-term performance of a company, so investors who are looking for long-term investments will pay a lot of attention to the ESG strategies of a company in addition to other financial factors. This will help them make informed investment decisions.