Potential Recommendations 

from the ESG Subcommittee

SEC Asset Management Advisory Committee

December 1, 2020
Overview

• Activities since prior meeting

• How is ESG different than other products?

• Discussion of potential recommendations regarding issuer disclosure 

of ESG information

• Discussion of potential recommendations regarding investment 

product disclosure of ESG information

• Observations regarding ESG performance measurement and 

attribution

• Next steps, including returning to AMAC with recommendations for 

vote

December 1, 2020 - ESG Subcommittee 2
Activities since prior meeting

• Since our last update to the AMAC, we:

• Convened a panel of investors, service providers and other experts to better 

understand what investors need with respect to issuer disclosure of ESG information

• Convened a panel of investors and representative from industry groups to better 

understand best practices in ESG investment product disclosure

• Began to reach out to issuer groups to understand their perspective on issuer 

disclosure

• this work has not yet taken place and may continue to refine our recommendations

• We became aware that the Commission has not taken a position on whether ESG represents a “strategy” for purposes of the Names Rule, so 

these references in our September 16, 2020 presentation should be 

stricken. We also became aware that comments to funds by the Commission staff are consistent with an interpretation that ESG is an 

investment type and therefore subject to the Names Rule

• The ESG subcommittee, however, does believe that ESG is best treated as a strategy 

under the Names Rule 

December 1, 2020 - ESG Subcommittee 3
How is ESG different than other products?

• Including E, S, or G separately, or any combination; and including 

impact, socially responsible, or sustainable investing

• These products:

• Have less available public data to support measurement and validation of 

ESG risk factors than exists for many traditional products

• Have risk/return objectives that could reflect a longer time horizon than 

traditional products

• May have objectives that fall outside risk/return objectives alone

• Is the problem created by the lack of public data important enough to 

require a solution?

December 1, 2020 - ESG Subcommittee 4
How we approached our recommendations

• Focused on issuer disclosure as improvements in its availability, consistency and 

meaningfulness would allow better investor transparency, and better 

performance measurement accuracy

• Did not believe disclosure rules need to change—issuers already have to disclose 

material risks—but that standards needed to be mandated as the state of data is 

poor without them

• Sought to minimize burden and create clarity/simplicity for issuers:

• Minimum number of material metrics

• Tailored by industry

• Appropriate to the SEC’s mandate—not trying to emulate the E.U.’s approach

• Sought the encouragement of best practices in investment product disclosure, 

aligned to a more standard taxonomy for comparability

• Including a broader focus on how managers undertake share ownership responsibilities

December 1, 2020 - ESG Subcommittee 5
Potential recommendations regarding 

issuer disclosure of ESG risks

The SEC should:

• Require the adoption of standards by which corporate issuers disclose 

material ESG risks

• Utilize standard setters’ frameworks to require disclosure of material 

ESG risks

• Require that material ESG risks be disclosed in a manner consistent 

with the presentation of other financial disclosures

December 1, 2020 - ESG Subcommittee 6

Issuer Disclosure
Adoption of standards

Standards should meet these criteria:

• Be authoritative and binding, akin to generally accepted accounting 

principles (GAAP)

• Apply to disclosure of material ESG risks and guide issuers in determining 

whether an ESG risk is material, or could become so in the future

• Standards should be material, limited by industry, and provide clear guidance on 

relevant metrics

• Ensure ESG disclosure comprehensively addresses all material ESG risks, 

meaningfully conveys the issuer’s exposure to each material ESG risk, and 

allows uniform comparison of material ESG risks across industries and 

specific comparison within industries

December 1, 2020 - ESG Subcommittee 7

Issuer Disclosure
Adopt standard setters’ frameworks

Those frameworks should meet these objectives:

• Clearly articulate the principles by which an issuer determines the 

backward-looking quantitative and forward-looking qualitative 

metrics and disclosures it should present on material ESG risks.

• Prioritize disclosure of material ESG risks applicable to most issuers, 

such as climate risk, while also requiring disclosure of specific 

material ESG risks pertinent to the issuer’s business and industry

• Mandate disclosure of all material ESG risks by all issuers, with 

appropriate exceptions considered for issuers that the SEC 

determines might suffer undue burdens in meeting the requirements, 

such as smaller issuers 

December 1, 2020 - ESG Subcommittee 8

Issuer Disclosure
Real Estate

Value of properties in identified flood zones

Percent of properties that are LEED certified (49%)*

Scope 3 greenhouse gas emissions (property usage)

Food Products

Water use (52%)

Percent of suppliers subject to external 

certifications (45%)

Scope 3 emissions (logistics and fleet)

Pharmaceuticals

Number and percent of suppliers located outside 

the U.S. (by country)

Payments to healthcare professionals in key markets 

outside the U.S. (e.g. China)

Description of sales incentive structure (55%)

Chemicals

Number of hazardous chemicals produced (according to 

SIN List, EU REACH List, etc)

Description of activities to reduce or phase out hazardous 

substances from product portfolio (50%)

Percent of operations in identified flood zones

Examples of Material ESG Disclosures with Poor 

Disclosure Rates By Industry

* disclosure rates are the percentage of companies that have any disclosures on the topic. Disclosure 

best practice or even good practice would be a much smaller subset of those that do disclose. 

Issuer Disclosure

Source: Sustainalytics, a Morningstar company

December 1, 2020 - ESG Subcommittee 9
Potential recommendations regarding 

ESG investment product disclosure

The SEC should:

• Suggest best practices to enhance ESG investment product disclosure, 

including alignment with the taxonomy developed by the ICI ESG 

Working Group, and clear description of each product’s strategy and 

investment priorities, including description of non-financial objectives 

such as environmental impact and adherence to religious objectives

• Suggest best practices for investment products to describe each 

product’s planned approach to share ownership activities in the 

Statement of Additional Information, and any notable recent 

ownership activities outside proxy voting, which is reported in Form 

N-PX, in shareholder reporting

December 1, 2020 - ESG Subcommittee 10

Investment Product 

Disclosure
ICI ESG Working Group taxonomy

• Classifying strategies in one or more of the following categories:

• Inclusionary

• Exclusionary

• Impact

• Describe how product carries out its strategy and objectives

• Prioritize objectives – do risk/return objectives have a higher or lower 

priority than social objectives, for example

September 16, 2020 - ESG Subcommittee 11

Investment Product 

Disclosure
Ownership activities

• Useful for all products:

• How they expect to vote proxies

• Whether they engage management individually, and/or participate in 

collective engagement of management

• Whether they expect to lead shareholder motions

• Any other ownership activities of note

• As part of the Statement of Additional Information

• With periodic reporting of any notable ownership activities in 

shareholder reporting

• Proxy reporting would continue in its existing fashion

September 16, 2020 - ESG Subcommittee 12

Investment Product 

Disclosure
Observations regarding ESG performance 

measurement and attribution

• Does ESG add alpha?

• A clear, consistent picture does not emerge

• There are multiple conflicting studies 

• Given the state of public data and the early evolution of practices, the 

subcommittee did not feel it should recommend specific approaches 

to ESG performance measurement

• We do believe that, for certain funds, adopting a secondary, ESGthemed benchmark would add information for investors

December 1, 2020 - ESG Subcommittee 13

Performance 

Measurement
Next steps

• We welcome your suggestions and feedback

• We expect to consult groups representing issuers to understand their 

point of view

• We plan to return to the next quarterly AMAC meeting with final 

recommendations for a vote

September 16, 2020 - ESG Subcommittee 14