36654 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Parts 200, 230, 232, 239, 249, 

274, and 279 

[Release No. 33–11068; 34–94985; IA–6034; 

IC–34594; File No. S7–17–22] 

RIN 3235–AM96 

Enhanced Disclosures by Certain 

Investment Advisers and Investment 

Companies About Environmental, 

Social, and Governance Investment 

Practices 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Proposed rule. 

SUMMARY: The Securities and Exchange 

Commission (‘‘Commission’’) is 

proposing to amend rules and forms 

under both the Investment Advisers Act 

of 1940 (‘‘Advisers Act’’) and the 

Investment Company Act of 1940 

(‘‘Investment Company Act’’) to require 

registered investment advisers, certain 

advisers that are exempt from 

registration, registered investment 

companies, and business development 

companies, to provide additional 

information regarding their 

environmental, social, and governance 

(‘‘ESG’’) investment practices. The 

proposed amendments to these forms 

and associated rules seek to facilitate 

enhanced disclosure of ESG issues to 

clients and shareholders. The proposed 

rules and form amendments are 

designed to create a consistent, 

comparable, and decision-useful 

regulatory framework for ESG advisory 

services and investment companies to 

inform and protect investors while 

facilitating further innovation in this 

evolving area of the asset management 

industry. In addition, we are proposing 

an amendment to Form N–CEN 

applicable to all Index Funds, as 

defined in Form N–CEN, to provide 

identifying information about the index. 

DATES: Comments should be received on 

or before August 16, 2022. 

ADDRESSES: Comments may be 

submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (https://www.sec.gov/ 

rules/submitcomments.htm); or 

• Send an email to rule-comments@

sec.gov. Please include File Number S7– 

17–22 on the subject line. 

Paper Comments 

• Send paper comments to Vanessa 

A. Countryman, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE, Washington, DC 20549–1090. 

All submissions should refer to File 

Number S7–17–22. This file number 

should be included on the subject line 

if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method of submission. The 

Commission will post all comments on 

the Commission’s website (https://

www.sec.gov/rules/proposed.shtml). 

Comments also are available for website 

viewing and printing in the 

Commission’s Public Reference Room, 

100 F Street NE, Washington, DC 20549, 

on official business days between the 

hours of 10 a.m. and 3 p.m. Operating 

conditions may limit access to the 

Commission’s Public Reference Room. 

All comments received will be posted 

without change. Persons submitting 

comments are cautioned that we do not 

redact or edit personal identifying 

information from comment submissions. 

You should submit only information 

that you wish to make available 

publicly. 

Studies, memoranda, or other 

substantive items may be added by the 

Commission or staff to the comment file 

during this rulemaking. A notification of 

the inclusion in the comment file of any 

such materials will be made available 

on the Commission’s website. To ensure 

direct electronic receipt of such 

notifications, sign up through the ‘‘Stay 

Connected’’ option at www.sec.gov to 

receive notifications by email. 

FOR FURTHER INFORMATION CONTACT: 

Robert Holowka, Emily Rowland, or 

Samuel Thomas, Senior Counsels; or 

Christopher Staley, Branch Chief, at 

(202) 551–6787 or IArules@sec.gov, 

Investment Adviser Regulation Office, 

Division of Investment Management; or 

Zeena Abdul-Rahman, Pamela K. Ellis, 

Amy Miller, or Nathan R. Schuur, 

Senior Counsels; Sara Cortes, Senior 

Special Counsel; or Brian McLaughlin 

Johnson, Assistant Director, at (202) 

551–6792, Investment Company 

Regulation Office, Division of 

Investment Management, Securities and 

Exchange Commission, 100 F Street NE, 

Washington, DC 20549–8549. 

SUPPLEMENTARY INFORMATION: The 

Commission is proposing for public 

comment amendments to the 

information displayed at 17 CFR 

200.800; 17 CFR 230.497 (‘‘rule 497’’) 

under the Securities Act of 1933 [15 

U.S.C. 77a et seq.] (‘‘Securities Act’’); 17 

CFR 232.11 (‘‘rule 11 of Regulation S– 

T’’) and 17 CFR 232.405 (‘‘rule 405 of 

Regulation S–T’’) under the Securities 

Exchange Act of 1934 (‘‘Exchange Act’’) 

[15 U.S.C. 78a et seq.]; amendments to 

Form N–1A [17 CFR 239.15A and 

274.11A], Form N–2 [17 CFR 239.14 and 

274.11a–1], Form S–6 [17 CFR 239.19], 

Form N–8B–2 [17 CFR 274.12], Form N– 

CEN [17 CFR 249.330 and 274.101], and 

Form N–CSR [17 CFR 249.331 and 

274.128] under the Investment 

Company Act of 1940 [15 U.S.C. 80a–1 

et seq.] (‘‘Investment Company Act’’); 

and amendments to Form ADV [17 CFR 

279.1] under the Advisers Act of 1940 

[15 U.S.C. 80b–1 et seq.] (‘‘Advisers 

Act’’). 

Table of Contents 

I. Introduction 

A. Background 

1. Development and Growth of ESG 

Investing 

2. Characteristics of ESG-Related 

Investment Products and Services 

3. The Need for Specific ESG Disclosure 

Requirements 

B. Overview of the Proposal 

II. Discussion 

A. Proposed Fund Disclosures to Investors 

1. Proposed Prospectus ESG Disclosure 

Enhancements 

2. Unit Investment Trusts 

3. Fund Annual Report ESG Disclosure 

4. Inline XBRL Data Tagging 

B. Adviser Brochure (Form ADV Part 2A) 

C. Regulatory Reporting on Form N–CEN 

and ADV Part 1A 

1. Form N–CEN 

2. Form ADV Part 1A Reporting 

D. Compliance Policies and Procedures 

and Marketing 

E. Compliance Dates 

III. Economic Analysis 

A. Introduction 

B. Economic Baseline 

1. Current Regulatory Framework 

2. Affected Parties 

3. Investor Interest in ESG Funds 

4. Institutional Investor Engagement With 

Companies on ESG-Related Issues 

5. Current Practices 

C. Benefits, Costs and Effects on Efficiency, 

Competition, and Capital Formation of 

the Proposed Rule and Form 

Amendments 

1. General Economic Benefits of ESG 

Disclosure 

2. Investor and Client Facing Disclosures 

3. Regulatory Reporting 

D. Reasonable Alternatives 

1. Uniform Narrative Disclosure 

Requirements for ESG-Integration and 

Focused Funds 

2. More Standardized Disclosures 

3. Alternative Approach to Layered 

Disclosure for Funds 

4. More Granular Reporting for Advisers 

5. GHG Metrics Reporting Requirements 

6. Modified Inline XBRL Requirements 

E. General Request for Comment 

IV. Paperwork Reduction Act Analysis 

A. Introduction 

B. Form N–1A 

C. Form N–2 

D. Forms N–8B–2 and S–6 

E. Proposed Inline XBRL Data Tagging 

Requirements 


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Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36655 

1See Carlson, Debbie, ‘‘ESG Investing Now 

Accounts for One-Third of Total U.S. Assets Under 

Management’’, Market Watch (Nov. 17, 2020), 

available at https://www.marketwatch.com/story/ 

esg-investing-now-accounts-for-one-third-of-total-us-assets-under-management-11605626611. See also 

Letter from Morningstar to Chair Gensler (June 9, 

2021) attaching Sustainable Funds U.S. Landscape 

Report—More funds, more flows, and impressive 

returns in 2020, Morningstar Manager Research 

(Feb. 19, 2021), available at https://www.sec.gov/ 

comments/climate-disclosure/cll12-8899329- 

241650.pdf. 

2U.S. sustainable investments increased from 

$639 billion in assets under management (‘‘AUM’’) 

in 1995 to $17.1 trillion by 2020. The end of the 

last decade in particular saw extensive growth as 

the total U.S.-domiciled assets integrating ESG 

strategies grew from $12.0 trillion in 2018 to $17.1 

trillion by 2020. This represented a 42% increase 

that brought the total amount of assets considering 

ESG strategies to 33%, or 1 in 3 dollars of total U.S. 

assets that are professionally managed. See, U.S. 

Sustainable Investing Forum, The Report on U.S. 

Sustainable and Impact Investing Trends (Nov. 16, 

2020), available at: https://www.ussif.org/files/ 

Trends/2020_Trends_Highlights_OnePager.pdf. For 

purposes of this Release, when discussing investors 

in funds and clients of investment advisers, we 

generally use the term ‘‘investors’’ unless otherwise 

required by the context. 

3See U.S. Government Accountability Office 

(‘‘GAO’’), GAO–20–530, Public Companies: 

Disclosure of Environmental, Social, and 

Governance Factors and Options to Enhance Them 

(July 2020), available at https://www.gao.gov/ 

assets/gao-20-530.pdf (stating that institutional 

investors seek ESG information to understand risks 

that could affect company performance, to inform 

proxy voting, or to enhance decision-making in 

portfolio management). See also, Boffo, Riccardo 

and Patalano, Robert, ‘‘ESG Investing: Practices, 

Progress and Challenges’’, Organization for 

Economic Co-operation and Development 

(‘‘OECD’’), (2020), available at https://

www.oecd.org/finance/ESG-Investing-PracticesProgress-Challenges.pdf (noting that ESG investing 

has evolved in recent years to meet the demands 

of institutional and retail investors, as well as 

certain public sector authorities, that wish to better 

incorporate long-term financial risks and 

opportunities into their investment decisionmaking processes to generate long-term value). 

4When referring to a ‘‘fund’’ in this release, we 

variously mean management investment companies 

registered on Form N–1A [17 CFR 274.11A] or Form 

N–2 [17 CFR 274 11a–1], unit investment trusts 

registered on Form S–6 [17 CFR 239.16], and BDCs, 

but not private funds as defined under the Advisers 

Act. 

5See Investment Company Act Release No. 23064 

(Mar. 13, 1998) [63 FR 13916 (Mar. 23, 1998)] 

(amending Form N–1A to focus prospectus 

disclosure on key information to assist in 

investment decisions) and Investment Company Act 

Release No. 13436 (Aug. 12, 1983) [48 FR 37928 

(Aug. 22, 1983)] (adopting Form N–1A and its twopart disclosure format permitting funds to provide 

investors with a simplified prospectus containing 

essential information along with a companion 

document called the ‘‘Statement of Additional 

Information’’ (‘‘SAI’’) with more detailed 

information). See also Investment Company Act 

Release No. 28584 (Jan. 13, 2009) [74 FR 4546 (Jan. 

26, 2009)] (adopting enhanced disclosure and new 

prospectus delivery option for registered open-end 

management investment companies including a 

plain English requirement and providing the 

statutory prospectus on an internet website) and 

Investment Adviser Act Release No. 3060 (July 29, 

2010) [75 FR 49233 (Aug. 12, 2010)] (amending the 

Form ADV Part 2 ‘‘brochure’’ to require advisers to 

provide meaningful information in a clearer format, 

noting ‘‘[t]o allow clients and prospective clients to 

evaluate the risks associated with a particular 

investment adviser, its business practices, and its 

investment strategies, it is essential that clients and 

prospective clients have clear disclosure that they 

are likely to read and understand’’). 

F. Proposed New Annual Reporting 

Requirements under Rule 30e–1 and 

Exchange Act Periodic Reporting 

Requirements for BDCs 

G. Form N–CEN 

H. Form N–CSR 

I. Form ADV 

J. Request for Comments 

V. Initial Regulatory Flexibility Analysis 

A. Reason for and Objectives of the 

Proposed Action 

1. Proposed Amendments to Forms N–1A 

and N–2 and Fund Annual Reports 

2. Proposed Amendments to Form 

N–8B–2 and Form S–6 

3. Proposed Amendments to Form N–CEN 

4. Proposed Amendments to Form N–CSR 

5. Proposed Amendments to Form ADV 

(Parts 1 and 2) 

B. Legal Basis 

C. Small Entities Subject to the Rule and 

Rule Amendments 

1. Proposed Amendments to Forms N–1A, 

N–2, N–8B–2, N–CEN, N–CSR, and S–6 

and Fund Annual Reports 

2. Proposed Amendments to Form ADV 

D. Projected Reporting, Recordkeeping and 

Other Compliance Requirements 294 

1. Proposed Amendments to Forms N–1A, 

N–2, and N–CSR and Fund Annual 

Reports 

2. Proposed Amendments to Forms 

N–8B–2 and S–6 

3. Proposed Amendments to Form N–CEN 

4. Proposed Amendments to Form ADV 

E. Duplicative, Overlapping, or Conflicting 

Federal Rules 

F. Significant Alternatives 

1. Proposed Amendments to Forms N–1A, 

N–2, N–8B–2, N–CEN, N–CSR, and S–6 

and Fund Annual Reports 

2. Proposed Amendments to Form ADV 

G. Solicitation of Comments 

VI. Consideration of Impact on the Economy 

Statutory Authority 

I. Introduction 

Many registered funds and investment 

advisers to institutional and retail 

clients consider environmental, social, 

and governance (‘‘ESG’’) factors in their 

investment strategies.1 Investor interest 

in ESG strategies has rapidly increased 

in recent years with significant inflows 

of capital to ESG-related services and 

investment products.2 Asset managers, 

as key conduits for these investments, 

have responded to this increase in 

investor demand by creating and 

marketing funds and strategies that 

consider ESG factors in their selection 

process.3

Investors looking to participate in 

ESG investing face a lack of consistent, 

comparable, and reliable information 

among investment products and 

advisers that claim to consider one or 

more ESG factors. This lack of 

consistent, comparable, and reliable 

information can create a risk that a fund 

or adviser’s actual consideration of ESG 

does not match investor expectations, 

particularly given that funds and 

advisers implement ESG strategies in a 

variety of ways.4 The lack of specific 

disclosure requirements tailored to ESG 

investing creates the risk that funds and 

advisers marketing such strategies may 

exaggerate their ESG practices or the 

extent to which their investment 

products or services take into account 

ESG factors. With respect to 

environmental and sustainability 

factors, this practice often is referred to 

as ‘‘greenwashing.’’ The absence of a 

common disclosure framework also 

makes it difficult for investors to find 

the disclosures and to determine 

whether a fund’s or adviser’s ESG 

marketing statements translate into 

concrete and specific measures taken to 

address ESG goals and portfolio 

allocation. It also makes it difficult for 

investors to understand how effectively 

the strategy is implemented over time, 

and can frustrate investors’ attempts to 

compare different ESG strategies across 

funds or advisers. 

The Commission’s commitment to 

improving the information provided to 

investors in disclosures is longstanding. 

For example, the Commission has long 

required funds to provide key 

information about a fund’s fundamental 

characteristics, while requiring advisers 

to provide clear information about their 

advisory businesses and the investment 

strategies they utilize or recommend to 

clients.5 Consistent with this goal, 

standardized disclosure of a fund’s 

principal investment strategies and 

other key attributes, along with 

information about advisory practices, is 

integral to investors’ understanding the 

specific types of investments or 

investment policies underlying certain 

strategies when making informed 

decisions about funds and advisers. As 

discussed below, the range of matters 

that different funds and advisers 

consider in implementing ESG 

strategies, in addition to the increased 

investor demand for investments in 

these strategies, requires strategyspecific disclosures. That will improve 

information available to investors by 

providing investors with an interest in 

ESG investing with key information that 

is material to their investment 

decisions. 

Accordingly, we are proposing 

various disclosure and reporting 

requirements to provide shareholders 

and clients improved information from 

funds and advisers that consider one or 


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36656 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

6For the purposes of this release and the 

proposed rules, the Commission uses the term 

‘‘ESG’’ to encompass terms such as ‘‘socially 

responsible investing,’’ ‘‘sustainable,’’ ‘‘green,’’ 

‘‘ethical,’’ ‘‘impact,’’ or ‘‘good governance’’ to the 

extent they describe environmental, social, and/or 

governance factors that may be considered when 

making an investment decision. These terms, 

however, are not defined in the Advisers Act, the 

Investment Company Act, or the rules or forms 

adopted thereunder. 

7See Liu, Jess, ‘‘ESG Investing Comes of Age, 

Morningstar’’ (Feb 11, 2021) available at: https://

www.morningstar.com/features/esg-investinghistory (noting that the first sustainable mutual 

fund, ‘‘Pax World,’’ was launched in 1971 and the 

Domini 400 Social Index was launched in 1990). 

8The United Nations Principles for Responsible 

Investment (‘‘UN PRI’’) launched in 2006 and called 

upon institutional investors to commit to six 

principles to integrate ESG issues into investment 

analysis and decision-making. See About the PRI, 

Principles for Responsible Investment, https://

www.unpri.org/pri/about-the-pri (last visited Dec. 8 

2021). The Forum for Sustainable and Responsible 

Investment and Ceres are two other notable 

institutional and investor-led initiatives. 

9See Murray, Sarah, ‘‘Measuring What Matters: 

the Scramble to Set Standards for Sustainable 

Business’’ (May 13, 2021) available at: https://

www.ft.com/content/92915630-c110-4364-86ee0f6f018cba90. See also IFRS Foundation 

Announces International Sustainability Standards 

Board, IFRS (Nov. 3, 2021), available at: https://

www.ifrs.org/news-and-events/news/2021/11/ifrsfoundation-announces-issb-consolidation-withcdsb-vrf-publication-of-prototypes/. 

10Several of these frameworks have relied on the 

Greenhouse Gas Protocol: A Corporate Accounting 

and Reporting Standard (‘‘GHG Protocol’’) that 

established measurable standards around reporting 

Scopes 1 and 2 GHG emissions that allow investors 

to more readily compare the emissions impacts of 

companies in their portfolios and conduct scenario 

analyses. See The Greenhouse Gas Protocol, A 

Corporate Accounting and Reporting Standard, 

Revised Edition, available at: https://

ghgprotocol.org/sites/default/files/standards/ghgprotocol-revised.pdf. In addition, the Financial 

Stability Board (‘‘FSB’’) established the Task Force 

on Climate–Related Financial Disclosures (‘‘TCFD’’) 

in 2015 to develop a framework to foster consistent 

climate-related financial disclosures that could be 

utilized by organizations across sectors and 

industries, including advisers and funds. See Task 

Force on Climate-related Financial Disclosures, 

2021 Status Report (Oct. 14, 2021) available at 

https://www.fsb.org/wp-content/uploads/P141021- 

1.pdf. In 2020, an international group of asset 

managers launched the Net Zero Asset Managers 

Initiative committing hundreds of signatories to the 

goal of achieving net zero gas emissions by 2050 or 

sooner. See Net Zero Asset Managers Initiative 

Progress Report (Nov. 1, 2021) available at https:// 

www.netzeroassetmanagers.org/media/2021/12/ 

NZAM-Progress-Report.pdf. 

11 In 2019, the European Commission adopted the 

Sustainable Finance Disclosure Regulation 

(‘‘SFDR’’), a sustainability disclosure framework for 

providers of certain financial products and financial 

market participants including asset managers. See 

Regulation (EU) 2019/2088 of the European 

Parliament and of the Council of 27 Nov. 2019 on 

sustainability-related disclosures in the financial 

services sector and Regulation (EU) 2020/852 of the 

European Parliament and of the Council of 18 June 

2020 on the establishment of a framework to 

facilitate sustainable investment, and amending 

Regulation (EU) 2019/2088 PE/20/2020/INIT 

(‘‘Taxonomy Regulation’’) (implementing a 

classification framework to help determine to what 

extent economic activities are environmentally 

sustainable by reference to six environmental 

objectives). 

12US SIF Comment Letter (June 14, 2021). Our 

proposal takes into account the comments we 

received in response to Acting Chair Allison Herren 

Lee’s requested public input on climate change 

disclosure from investors, registrants, and other 

market participants. See Acting Chair Allison 

Herren Lee Public Statement, Public Input 

Welcomed on Climate Change Disclosures (Mar. 15, 

2021), available at https://www.sec.gov/news/ 

public-statement/lee-climate-change-disclosures 

(‘‘Climate RFI’’). The comment letters are available 

at https://www.sec.gov/comments/climatedisclosure/cll12.htm. Except as otherwise noted, 

references to comments in this release pertain to 

these comments. 

13See Letter from Morningstar to Chair Gensler 

(June 9, 2021) attaching Sustainable Funds U.S. 

Landscape Report: More Funds, More Flows, and 

Impressive Returns in 2020, Morningstar Manager 

Research (Feb. 10, 2021), available at https://

www.sec.gov/comments/climate-disclosure/cll12- 

8899329-241650.pdf. 

14See Whyte, Amy, ‘‘More Institutions than Ever 

are Considering ESG. Will they Follow Through?’’, 

Institutional Investor (Oct. 6, 2020), available at 

https://www.institutionalinvestor.com/article/ 

b1npm5yq50b024/More-Institutions-Than-Ever-AreConsidering-ESG-Will-They-Follow-Through. 

more ESG factors. These enhancements 

are designed to help investors, and 

those who provide advice to investors, 

make more informed choices regarding 

ESG investing and better compare funds 

and investment strategies. The proposed 

amendments create a framework for 

disclosures about a fund or adviser’s 

ESG-related strategies. We are also 

proposing to enhance the quantitative 

data for environmentally focused fund 

strategies, where methodologies for 

reporting emissions metrics are 

becoming more standardized. In 

addition to these investor- and clientfacing disclosures, we are also 

proposing that funds and advisers report 

census type information on their ESG 

investment practices in regulatory 

reporting to the Commission, which 

would inform our regulatory, 

enforcement, examination, disclosure 

review, and policymaking roles, and 

help us track trends in this evolving 

area of asset management. In addition to 

the ESG-specific disclosure, the 

Commission is proposing an 

amendment to Form N–CEN that would 

require all index funds, regardless of 

whether the fund tracks an ESG-related 

index, to report identifying information 

about the index. Finally, we are 

proposing to require funds to submit the 

ESG-related disclosures in a structured 

data language to make it easier for 

investors and others to analyze this 

data. 

A. Background 

1. Development and Growth of ESG 

Investing 

‘‘ESG’’ is a term commonly used to 

incorporate three broad categories of 

interest for investors: Environmental, 

Social, and Governance.6 Investor 

demand for ESG funds and advisory 

services has increased over the last 

decade, but consideration of ESG issues 

in investment decision making has deep 

roots. In the 1970s and 1980s, some 

asset managers began to integrate ESG 

factors into funds with social and 

environmental investment objectives, 

while the early 1990s saw the launch of 

the first ‘‘socially responsible’’ indexes.7

Since the mid-2000s, many financial 

institutions have signed on to climate 

and sustainability-related investment 

frameworks.8 In addition, a number of 

organizations have formed to 

promulgate disclosure reporting 

frameworks that incorporate 

environmental measures including: the 

Climate Disclosure Standards Board, 

Global Reporting Initiative, 

Sustainability Accounting Standards 

Board, and International Sustainability 

Standards Board.9 These trends have 

accelerated in recent years as the asset 

management industry has increasingly 

focused on issues such as financing the 

transition from fossil fuels and 

mitigating risks associated with climate 

change, and additional voluntary 10 and 

regulatory 11 frameworks have 

developed. 

Statistics measuring fund flows and 

assets under management reflect the 

increasing prevalence of ESG investing 

in recent years. The size and scope of 

the asset management industry’s ESG 

investing landscape varies significantly 

depending, for example, on the focus of 

the analysis, the assumptions made, and 

how much of this evolving area is 

measured. For example, the U.S. Forum 

for Sustainable and Responsible 

Investment (‘‘US SIF’’) states that since 

1995, the ‘‘U.S. sustainable investment 

universe’’ has increased more than 25 

times from $639 billion to $17.1 

trillion.12 Morningstar found that at the 

close of 2020 the number of 

‘‘sustainable’’ open-end funds and 

exchange-traded funds (‘‘ETFs’’) 

available to U.S. investors had 

experienced a nearly fourfold increase 

over the past decade with a significant 

acceleration beginning in 2015.13 In the 

same report, Morningstar states that 

sustainable funds have set records for 

inflows in each of the past 5 years with 

more significant increases in 2019 and 

2020. 

Investors and other market 

participants increasingly demand access 

to ESG-related investment services, 

products, and data, as, according to one 

survey, 42% of institutional investors 

say they consider ESG factors when 

making an investment decision.14

Another survey of professional fund 


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15See Goodsell, Dave, 2021 ESG Investor Insight 

Report ESG Investing: Everyone’s on the 

bandwagon, Natixis Investment Managers (2021), 

available at https://www.im.natixis.com/us/ 

research/esg-investing-survey-insight-report. 

16See Ghoul, El-Sadouk and Karoui, Aymen. 

‘‘What’s in a (green) name? The consequences of 

greening fund names on fund flows, turnover, and 

performance.’’ Finance Research Letters 39: 101620 

(2021). 

17See infra text accompanying note 249. 

18See US SIF, Report on U.S. Sustainable, 

Responsible and Impact Investing Trends (2016), 

available at https://www.ussif.org/files/SIF_Trends_

16_Executive_Summary(1).pdf and US SIF, 

Sustainable Investing Basics (2020), available at 

https://www.ussif.org/sribasics. 

19See infra section III.B.3. 

20See Asset Management Advisory Committee 

Recommendations for ESG (July 7, 2021) p. 4 

(‘‘AMAC Recommendations’’), available at https:// 

www.sec.gov/files/spotlight/amac/ 

recommendations-esg.pdf. 

21See Funds’ Use of ESG Integration and 

Sustainable Investing Strategies: An Introduction, 

Investment Company Institute, p. 4 (July 2020), 

available at https://www.ici.org/system/files/ 

attachments/pdf/20_ppr_esg_integration.pdf. Some 

market participants and commentators refer to 

funds that consider ESG factors as just one among 

many factors as ‘‘ESG consideration’’ funds. See Jon 

Hale, A Taxonomy of Sustainable Funds, 

Morningstar, (Mar. 7, 2019) available at: https://

www.morningstar.com/articles/918263/ataxonomy-of-sustainable-funds. See also infra at 

section II.A.1.a. for the Commission’s proposed 

definition of ESG Integration. 

22Unlike the terms ‘‘integration’’ and ‘‘impact,’’ 

which are currently used within this market, ‘‘ESGFocused’’ is not currently a commonly used term 

and can encompass a number of ESG-related 

strategies and labels used in the market. See infra 

at Section II. See also, e.g., Funds’ Use of ESG 

Integration and Sustainable Investing Strategies: An 

Introduction, Investment Company Institute, p. 5 

(July 2020), available at https://www.ici.org/system/ 

files/attachments/pdf/20_ppr_esg_integration.pdf. 

(discussing how sustainable investing strategies are 

distinct from ESG integration in that they use ESG 

analysis as a significant part of the fund’s 

investment thesis) [hereinafter ICI White Paper]; A 

Practical Guide to ESG Integration for Equity 

Investing, Principles for Responsible Investment, 

available at: https://www.unpri.org/listed-equity/ 

esg-integration-techniques-for-equity-investing/ 

11.article. 

23See Burton, M. Diane, Chadha, Gurveen, Cole, 

Shawn A., Dev, Abhishek, Jarymowycz, Christina, 

Jeng, Leslie, Kelley, Laura, Lerner, Josh, Palacios, 

Jaime R. Diaz, Xu, Yue (Cynthia), and Zochowski, 

Robert. ‘‘Studying the U.S.-Based Portfolio 

Companies of U.S. Impact Investors,’’ Harvard 

Business School Working Paper, No. 21–130, (May 

28, 2021), available at https://www.hbs.edu/ris/ 

Publication%20Files/21-130_1fd65a3f-c144-4338- 

b319-7aa205339968.pdf (stating that impact 

investing is characterized by seeking both financial 

returns and a non-financial, social or environmental 

impact). For purposes of the proposed rule, we 

define Impact Funds as a subset of ESG-Focused 

Funds. See infra at II.A.1.b. 

24 ICI White Paper, at p. 8. 

25See Fourth Annual IIA Benchmark Survey 

Reveals Significant Growth in ESG, Continued 

Multi-Asset Innovation & Heightened Competition 

(Oct. 28 2020), available at http://

www.indexindustry.org/2020/10/28/fourth-annualiia-benchmark-survey-reveals-significant-growth-inesg-amid-continued-multi-asset-innovationheightened-competition/. 

26 In 2021, the Commission proposed 

amendments to Form N–PX to enhance the 

information mutual funds, exchange-traded funds, 

and certain other funds report about their proxy 

votes including votes on ESG issues. See Enhanced 

Reporting of Proxy Votes by Registered 

Management Investment Companies; Reporting of 

Executive Compensation Votes by Institutional 

Investment Managers (Sept. 29, 2021) [86 FR 

57478(Oct. 15, 2021)] available at: https://

www.sec.gov/rules/proposed/2021/34-93169.pdf. 

27See AMAC Recommendations, supra footnote 

20 at 9–10 (‘‘experts consulted by the subcommittee 

. . . noted that ESG investment products engage in 

share ownership activities as a more deliberate 

piece of their strategy than many, but not all, other 

investment products . . . Investors in these ESG 

products, and other investment products, would 

benefit from clear, consistent statement [sic] 

regarding how ownership responsibilities are 

carried out by the product’’). 

selectors and institutional investors 

indicated that 75% and 77% 

respectively believe that the 

consideration of ESG factors is integral 

to investment decision making.15

Moreover, funds are increasingly 

selecting fund names to signal ESG 

considerations or converting existing 

funds into ESG or ‘‘sustainable’’ 

funds.16 An analysis of Form N–PORT 

data indicates that 2.4 percent of all 

funds had names containing 

‘‘Sustainable,’’ ‘‘Responsible,’’ ‘‘ESG,’’ 

‘‘Climate,’’ ‘‘Carbon,’’ or ‘‘Green’’ as of 

September 2021.17 The Forum for 

Sustainable and Responsible Investment 

has also documented continued growth 

in ESG funds, expanding from 55 funds 

in 1995, to 1,002 in 2016, and to 1,741 

in 2020.18

2. Characteristics of ESG-Related 

Investment Products and Services 

Approaches to ESG investing vary, 

which can pose challenges for investors 

choosing among investment products 

and services.19 First, ESG is an 

expansive term that incorporates three 

broad categories of interest for investors 

and asset managers: environmental 

issues, social issues, and governance 

issues.20 Some funds and advisers will 

consider only one issue under the ESG 

umbrella when making investment 

decisions, while others will apply the 

factors more broadly and implement 

measures across each of the ESG 

categories. Even those focusing on all 

three categories will have differing 

perspectives on what attributes of an 

issuer or investment fit within ESG. 

Second, investment products that 

incorporate one or more ESG factors 

vary in the extent to which ESG factors 

are considered relative to other factors. 

This generally falls along a three-part 

spectrum: integration, ESG-Focused, 

and impact investing. We are 

incorporating these terms into our 

proposed rules. 

Generally, ‘‘ESG Integration’’ 

strategies consider one or more ESG 

factors alongside other, non-ESG factors 

in investment decisions such as 

macroeconomic trends or companyspecific factors like a price-to-earnings 

ratio.21 In such strategies, ESG factors 

may be considered in the investment 

selection process but are generally not 

dispositive compared to other factors 

when selecting or excluding a particular 

investment. 

‘‘ESG-Focused’’ strategies focus on 

one or more ESG factors by using them 

as a significant or main consideration in 

selecting investments or in engaging 

with portfolio companies.22 For 

example, such ESG-Focused strategies 

might exclude or include certain 

investments based on particular ESG 

criteria. These factors could include, for 

example, screens for carbon emissions, 

board or workforce diversity and 

inclusion, or industry-specific issues. 

ESG-Focused strategies could also 

include engagement with management 

of the issuers in which the fund or 

adviser invests through proxy voting or 

direct engagement. 

Finally, ‘‘ESG Impact’’ strategies have 

a stated goal that seeks to achieve a 

specific ESG impact or impacts that 

generate specific ESG-related benefits.23

Impact strategies generally seek to target 

portfolio investments that drive specific 

and measurable environmental, social, 

or governance outcomes.24

Funds and advisers also vary in how 

they analyze, select, and manage 

investments to achieve their ESG 

objectives. Third-party service providers 

and ESG consultants (hereafter referred 

to as ‘‘ESG providers’’) have emerged 

that provide data to evaluate ESG 

factors, including issuer-specific ratings 

or scores. Some advisers and funds rely 

on these analyses and ratings, while 

others use them in combination with 

internal analyses. Other funds and 

advisers track indexes designed to select 

investments based on various ESG 

factors. Index providers are playing a 

large role in driving the flow of assets 

towards issuers that meet the indexes’ 

ESG methodology.25

Funds and advisers also take differing 

approaches regarding how they engage 

on ESG issues with the issuers in which 

they invest, such as through proxy 

voting or manager engagement.26 ESGFocused Funds and advisers often use 

proxy voting and other engagement with 

issuers in their portfolios as a more 

deliberate piece of their strategy than 

other investment products.27 As 

institutional investors increasingly 

integrate ESG into their engagement 

with portfolio companies and comply 

with their own internal ESG policies or 

investor mandates, proxy voting advice 


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36658 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

28 Investors are increasingly interested in proxy 

voting practices that consider ESG factors to 

influence company behavior. See, e.g., Peter Reali, 

Jennifer Grzech, and Anthony Garcia, ESG: 

Investors Increasingly Seek Accountability and 

Outcomes, Harvard Law School Forum on 

Corporate Governance, (Apr. 25, 2021), available at 

https://corpgov.law.harvard.edu/2021/04/25/esginvestors-increasingly-seek-accountability-andoutcomes/; see also Comment Letter of Gary 

Retelny, President and CEO, Institutional 

Shareholder Services Inc., available at https://

www.sec.gov/comments/climate-disclosure/cll12- 

8914286-244666.pdf. 

29See AMAC Recommendations, supra footnote 

20 at 10 (‘‘while the AMAC believes that the 

reporting of proxy voting is already well regulated, 

other ownership responsibilities, if significant to 

the product’s strategy, should be noted’’). 

30See, e.g., In the Matter of Pax World 

Management Corp., Investment Advisers Act 

Release No. 2761 (July 30, 2008) (settled action) 

(alleging that despite investment restrictions 

disclosed in its prospectus, statement of additional 

information, and other published materials that it 

complied with certain socially responsible 

investing restrictions the fund purchased securities 

contrary to those representations and failed to 

follow its own policies and procedures requiring 

internal screening to ensure compliance with those 

restriction). 

31See Wursthorn, Michael, ‘‘Tidal Wave of ESG 

Funds Brings Profit to Wall Street’’, The Wall Street 

Journal (Mar. 16, 2021), available at https://

www.wsj.com/articles/tidal-wave-of-esg-fundsbrings-profit-to-wall-street-11615887004 (noting 

that ETFs with strategies that focus on socially 

responsible investments have higher fees than 

‘‘standard ETFs’’). 32Mackintosh, James, ‘‘ESG Funds Mostly Track 

the Market’’, The Wall Street Journal (Feb. 23, 

2020), available at https://www.wsj.com/articles/ 

esg-funds-mostly-track-the-market-11582462980 

(noting that an analysis found that ESG funds have 

inconsistent approaches, but on average hold 

slightly more technology stocks and fewer energy 

stocks than the S&P 500 index). 

33Some have noted that the ‘‘fluidity of the ESG 

rubric’’ can lead to subjective application of ESG 

factors when applied to certain assets. For example, 

a recent journal article notes that one provider of 

ESG data and ratings found that about half of the 

ESG mutual funds it assessed scored as ‘‘average or 

worse’’ than non-ESG funds using the provider’s 

own ESG scoring methodology, showing that 

managers often disagree on the ESG attributes of 

particular investments. In another example, the 

article posits that an issuer that investors may 

assess to be ‘‘environmentally sound’’ or 

‘‘beneficial’’ could have what it perceives to be 

weak corporate governance controls or mistreat its 

workforce leaving an investor with subjective 

judgments in weighting E versus S versus G factors. 

Lastly, the article notes that there is substantial 

debate around how to assess the climate impacts of 

issuers that rely on certain types of energy 

production and the relative environmental impacts 

and risks of coal, oil, natural gas, and nuclear 

energy. See Schanzenbach, Max and Sitkoff, Robert 

‘‘Reconciling Fiduciary Duty and Social 

Conscience: The Law and Economics of ESG 

Investing by a Trustee,’’ 72 Stan. L. Rev. 381 (Feb. 

2020), available at: https://ssrn.com/ 

abstract=3244665. 

34See AMAC Recommendations, supra footnote 

20 at p. 6. 

businesses have sought to meet this 

demand by offering proxy voting 

recommendations that consider ESG 

factors.28 While funds are required to 

report information about how they vote 

proxies, less is disclosed regarding other 

engagements they may have with issuers 

in their capacity as a shareholder.29

3. The Need for Specific ESG Disclosure 

Requirements 

Currently, funds and registered 

advisers are subject to disclosure 

requirements concerning their 

investment strategies. Funds must 

provide disclosures concerning material 

information on investment objectives, 

strategies, risks, and governance, and 

management must provide a discussion 

of fund performance in the fund’s 

shareholder report. Registered advisers 

are required to provide information 

about their advisory services in 

narrative format on Form ADV Part 2— 

often referred to as a brochure— 

describing their firm’s methods of 

analysis and investment strategies, fees, 

conflicts, and personnel. General 

disclosures about ESG-related 

investment strategies fall under these 

disclosure requirements, and failure to 

adhere to current disclosure 

requirements violates Federal securities 

laws, but there are no specific 

requirements about what a fund or 

adviser following an ESG strategy must 

include in its disclosures.30

While the Commission has not 

generally prescribed specific disclosures 

for particular investment strategies, ESG 

strategies differ in certain respects that 

we believe necessitate specific 

requirements and mandatory content to 

assist investors in understanding the 

fundamental characteristics of an ESG 

fund or an adviser’s ESG strategy in 

order to make a more informed 

investment decision. First, the variation 

discussed above concerning ESG 

investing, combined with the lack of a 

more specific disclosure framework, 

increases the risk of funds and advisers 

marketing or labelling themselves as 

‘‘ESG,’’ ‘‘green,’’ or ‘‘sustainable’’ in an 

effort to attract investors or clients, 

when the ESG-related features of their 

investment strategies may be limited. 

Such exaggerations can impede 

informed decision-making as the labels 

may cause investors to believe they are 

investing in—and potentially are paying 

higher fees for—a ‘‘sustainable’’ strategy 

that may actually vary little from ones 

without such a label.31 Ultimately, this 

can frustrate investor expectations in 

the market for ESG investing, with some 

investors and market participants 

questioning whether and to what degree 

certain ESG funds are appreciably 

different than other types of funds.32

Requiring comparable, consistent, and 

reliable information from all funds and 

advisers that use an ESG label would 

reduce the risk of exaggerated claims of 

the role of ESG factors in investing, 

thereby increasing the efficiency and 

reliability with which investors seeking 

an ESG strategy can find a fund or 

adviser that meets their investing 

preferences, better protecting and 

serving investors in the market for ESGrelated investing as a whole. 

In addition to the risk of exaggerated 

labels or claims, funds and advisers 

incorporating or focusing on ESG factors 

currently present inconsistent 

information concerning how they 

consider ESG factors in their investment 

strategies to investors, other market 

participants, and the Commission. We 

believe that a major reason for such 

inconsistency is the variety of 

perspectives concerning what ESG 

investing means, the issues or objectives 

it encompasses, and the ways to 

implement an ESG strategy. ‘‘ESG 

investing,’’ ‘‘sustainable investing,’’ or 

other terms can reasonably connote 

different investing approaches to 

different investors. Even when investors 

focus on the same ESG issue, such as 

climate change or labor practices, there 

are debates about how to address such 

issues, resulting in different, and 

sometimes opposing, assessments of 

whether a particular investment meets 

the investors’ goals in furthering that 

issue.33 We believe that requiring funds 

and advisers to disclose with specificity 

their ESG investing approach can help 

investors and clients understand the 

investing approach the fund or adviser 

uses. It can also help investors compare 

the variety of emerging approaches, 

such as employment of an inclusionary 

or exclusionary screen, focus on a 

specific impact, or engagement with 

issuers to achieve ESG goals. The 

proposed rules would help draw out 

these distinctions and better inform 

investors by providing them with 

decision-useful information to compare, 

for example, two funds that both refer 

to their strategy as ‘‘sustainable’’ but 

employ different approaches and areas 

of focus to implement their sustainable 

strategy. 

Further, ESG investment products can 

have risk/return objectives that reflect a 

longer time horizon and have objectives 

that extend beyond risk/return goals.34

Funds and advisers with ESG-related 

investing objectives can consider factors 

and measures in addition to those often 

used to measure financial return to 

manage the portfolio. They may also use 

additional key performance indicators 

specific to ESG objectives to assess the 

fund’s or adviser’s effectiveness in 

meeting these goals. Additionally, for 

ESG investing, investors might be more 

likely to have an interest in knowing 


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Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36659 

35For example, investors often have differing 

priorities when it comes to ESG investment. Studies 

have shown that certain investors in socially 

responsible investments may be less sensitive to 

financial performance compared to other investors, 

perhaps because SRI investors derive utility from 

non-pecuniary attributes as well. See infra at text 

accompanying note 288. 

36AMAC Recommendations, supra footnote 20, at 

6–7. 

37More specifically, we propose to amend Forms 

N–1A, N–2, N–CSR, N–8B–2, S–6, N–CEN, and 

ADV Part 2A. 

38See Net Zero Asset Managers Initiative, Net 

Zero Asset Managers initiative announces 41 new 

signatories, with sector seeing ‘net zero tipping 

point’ (July 6, 2021) available at: https://

www.netzeroassetmanagers.org/net-zero-assetmanagers-initiative-announces-41-new-signatorieswith-sector-seeing-net-zero-tipping-point. See also 

Glasgow Financial Alliance for Net Zero: ‘‘Our 

Progress and Plan Towards a Net-Zero Global 

Economy’’ (Nov. 2021) available at: https://

www.gfanzero.com/progress-report/. 

39This approach would complement existing 

requirements that funds use plain English and 

disclose essential information in a concise and 

straightforward manner to help investors make 

informed investment decisions about the fund. See, 

e.g., General Instructions B.4.(c) and C.1–3(c) of 

Form N–1A [17 CFR 274.11A]; General Instruction 

for Part A and General Instructions for Parts A and 

B of Form N–2 [17 CFR 274.11a–1]. 

40While Closed-End Funds do not utilize a 

summary section in their prospectuses, our 

proposed requirements for closed-end funds still 

utilize principles of layered disclosure by requiring 

certain items to appear earlier in the prospectus. 

more about the investment selection and 

engagement process to ensure that the 

process aligns with the ESG-related 

values or priorities of the investor, 

rather than simply as a means for 

gauging effectiveness of the end result of 

financial return.35 Accordingly, we 

believe that specific ESG-related 

disclosures would enable an investor to 

understand and analyze funds’ and 

advisers’ ability to meet any ESG-related 

objectives and would complement 

existing disclosures regarding objectives 

related to financial returns by helping 

the investor understand the relationship 

between ESG-related objectives and 

financial return objectives.36

B. Overview of the Proposal 

In light of these observations, we are 

proposing to require additional specific 

disclosure requirements regarding ESG 

strategies to investors in fund 

registration statements, the management 

discussion of fund performance in fund 

annual reports, and adviser brochures.37

We believe that these disclosures would 

promote consistent, comparable, 

reliable—and therefore decisionuseful—information for investors. These 

changes also would allow investors to 

identify funds more readily and advisers 

that do or do not consider ESG factors, 

differentiate how they consider ESG 

factors, and help inform their analysis of 

whether they should invest. To address 

exaggerated claims about ESG strategies, 

we are proposing minimum disclosure 

requirements for any fund that markets 

itself as an ESG-Focused Fund, and 

requiring streamlined disclosure for 

Integration Funds that consider ESG 

factors as one of many factors in 

investment selections. We also propose 

that funds tag their ESG disclosures 

using the Inline eXtensible Business 

Reporting Language (‘‘Inline XBRL’’) 

structured data language to provide 

machine-readable data that investors 

and other market participants could use 

to more efficiently access and evaluate 

ESG funds. We believe that these 

requirements would provide improved 

transparency and decision-useful 

information to investors assisting them 

in making an informed choice based on 

their preferences for ESG investing. 

To complement the disclosure in the 

prospectus, we are proposing to require 

that certain ESG-Focused Funds provide 

disclosures in their annual reports. 

Specifically, we are proposing that an 

Impact Fund summarize its progress on 

achieving its specific impact(s) in both 

qualitative and quantitative terms, and 

the key factors that materially affected 

the fund’s ability to achieve the 

impact(s), on an annual basis. We also 

are proposing amendments to fund 

annual reports to require a fund for 

which proxy voting or other engagement 

with issuers is a significant means of 

implementing its strategy to disclose 

information regarding how it voted 

proxies relating to portfolio securities 

on particular ESG-related voting matters 

and information regarding its ESG 

engagement meetings. 

Finally, the Commission is proposing 

a requirement for ESG-Focused Funds 

that consider environmental factors. 

Specifically, we are proposing to require 

disclosure of two greenhouse gas 

(‘‘GHG’’) emissions metrics for the 

portfolio in such funds’ annual reports. 

We believe the proposed information 

would provide quantitative metrics 

related to climate for investors focused 

on climate risk while also providing 

verifiable data from which to evaluate 

environmental claims. This information 

also would benefit those investors that 

have made net zero or similar 

commitments by helping them 

determine whether a particular 

investment is consistent with the 

commitment they have made.38

Disclosure of GHG metrics could better 

prevent exaggerated claims in this space 

by providing consistent, comparable, 

and reliable data that investors can use 

when reviewing funds that market 

themselves as focusing on climate 

factors in their investment processes. 

With access to GHG metrics, fund 

investors and market participants could 

review the relative carbon footprints 

and carbon intensity of ESG-Focused 

Funds against comparable funds and 

determine whether a fund’s climate or 

sustainability disclosures align with its 

actual GHG metrics. 

To complement the proposed ESG 

disclosures in fund registration 

statements and annual reports and 

adviser brochures, we are proposing to 

require certain ESG reporting on Forms 

N–CEN and ADV Part 1A, which are 

XML-structured forms on which funds 

and advisers, respectively, report 

census-type data. This reporting would 

provide the Commission, investors, and 

other market participants with 

structured data that can be used to 

understand industry trends in the 

market for ESG investment products and 

services. 

II. Discussion 

A. Proposed Fund Disclosures to 

Investors 

1. Proposed Prospectus ESG Disclosure 

Enhancements 

We are proposing to require a fund 

engaging in ESG investing to provide 

additional information about the fund’s 

implementation of ESG factors in the 

fund’s principal investment strategies. 

The proposed amendments are designed 

to provide investors clear and 

comparable information about how a 

fund considers ESG factors.39 They also 

address the significant variability in the 

ways different funds approach the 

incorporation of ESG factors in their 

investment decisions by contemplating 

a range of strategies that funds use. The 

level of detail required by this enhanced 

disclosure would depend on the extent 

to which a fund considers ESG factors 

in its investment process. Additionally, 

because the information necessary to 

understand fully a fund’s ESG 

methodology could lead to a large 

amount of disclosure, our proposed 

requirements contemplate layered 

disclosure. For example, open-end 

funds would provide an overview of 

their ESG strategy in the summary 

section of the prospectus, and would 

provide more details about the strategy 

in the statutory prospectus.40 We 

designed this layered disclosure 

approach to highlight key information 

for investors to help them make better 

informed investment decisions as well 

as to promote disclosure that is inviting 

and usable to a broad spectrum of 

investors. This approach is designed so 


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41The Commission has taken multiple steps that 

recognize investors’ preferences for concise and 

engaging disclosure of key information as well 

ensure that additional information that may be of 

interest to some investors is available through 

layered disclosure. See, e.g., New Disclosure Option 

for Open-End Management Investment Companies, 

Investment Company Act Release No. 23065 (Mar. 

13, 1998) [63 FR 13968 (Mar. 23, 1998)]; Enhanced 

Disclosure and New Prospectus Delivery Option for 

Registered Open-End Management Investment 

Companies, Investment Company Act Release No. 

28584 (Jan. 13, 2009) [74 FR 4546 (Jan. 26, 2009)]; 

Updated Disclosure Requirements and Summary 

Prospectus for Variable Annuity and Variable Life 

Insurance Contracts, Investment Company Act 

Release No. 33814 (Mar. 11, 2020) [85 FR 25964 

(May 1, 2020)]; see also Tailored Shareholder 

Reports, Treatment of Annual Prospectus Updates 

for Existing Investors, and Improved Fee and Risk 

Disclosure for Mutual Funds and Exchange-Traded 

Funds; Fee Information in Investment Company 

Advertisements, Investment Company Act Rel. No. 

33963 (Aug. 5, 2020) [85 FR 70716, 70720–21 (Nov. 

5, 2020)] (stating that the ‘‘vast majority of 

individual investors responding to questions in the 

Fund Investor Experience RFC about summary 

disclosure expressed a preference for summary 

disclosure . . . . [and that] Commenters’ overall 

preference for summary disclosure is generally 

consistent with other information the Commission 

has received—through investor testing, surveys, and 

other information gathering—that similarly 

indicates that investors strongly prefer concise, 

layered disclosure’’). 

42Because we are proposing requirements 

specific to funds that seek to achieve a particular 

ESG impact, we are also proposing a distinct 

definition for this subset of ESG-Focused Funds. 

See infra at Section II.A.1.ii. 

43For a BDC, certain proposed disclosure would 

be included in the management discussion and 

analysis, in the BDC’s annual report on Form 10– 

K [17 CFR 249.310]. Also, a unit investment trust 

(‘‘UIT’’) would not be subject to the proposed 

annual report to shareholders requirements because 

a UIT is not required to provide management’s 

discussion of fund performance (‘‘MDFP’’) 

disclosure in their annual reports. 

44For example, an Integration Fund might 

disclose that it invests in companies consistent with 

its objective of risk-adjusted return; that it considers 

ESG factors alongside financial, industry-related 

and macroeconomic factors; that the specific ESG 

factors it evaluates are the impact and risk around 

climate change, environmental performance, labor 

standards, and corporate governance; and that its 

consideration of these factors would not necessarily 

result in a company being included or excluded 

from the evaluation process but rather would 

contribute to the overall evaluation of that 

company. Proposed Item 4(a)(2)(ii)(A) of Form N– 

1A [17 CFR 274.11A]; proposed Item 8.(2)(e)(2)(A) 

of Form N–2 [17 CFR 274.11a–1]. For purposes of 

section II.A.1., the term ‘‘funds’’ includes all 

management investment companies, including 

BDCs, but not unit investment trusts; see also 

General Instructions B.4.(c) and C.1.(a) of Form N– 

1A [17 CFR 274.11A]; General Instructions Part A: 

The Prospectus of Form N–2 [17 CFR 274.11a–1]. 

45 Id. See 17 CFR 230.498 [Rule 498 under the 

Securities Act of 1933]. We estimate that as of Dec. 

31, 2020, approximately 95% of mutual funds and 

ETFs use summary prospectuses. This estimate is 

based on data on the number of mutual funds and 

ETFs that filed a summary prospectus in 2020 in 

the Commission’s Electronic Data, Gathering, 

Analysis, and Retrieval system (‘‘EDGAR’’) (10,739) 

and the Investment Company Institute’s estimated 

number of mutual funds and ETFs as of Dec. 31, 

2020 (11,323). See Investment Company Institute, 

2021 Investment Company Fact Book, at 40, 

available at https://www.ici.org/system/files/2021- 

05/2021_factbook.pdf. 

46For purposes of our proposed rule, investment 

selection encompasses the decision to invest in a 

particular security as well as the size or weighting 

of the particular security investment. 

47Further, in a separate proposal, we are 

proposing to define the names of ‘‘integration 

funds’’ as materially deceptive and misleading if 

the name includes terms indicating that the fund’s 

investment decisions incorporate one or more ESG 

factors. See 17 CFR 270.35d–1 [rule 35d–1 under 

the Investment Company Act] (the ‘‘names rule’’); 

Investment Company Names, Investment Company 

Act Release No. 34593 (May 25, 2022) (‘‘Names 

Rule Proposing Release’’), published elsewhere in 

this issue of the Federal Register. 

the additional information that may be 

interest to some investors is available 

through layered disclosure.41

Specifically, and as discussed further 

below, funds that meet the proposed 

definition of ‘‘Integration Fund’’ would 

provide more limited disclosures. ‘‘ESGFocused’’ Funds, which would include, 

for example, funds that apply 

inclusionary or exclusionary screens, 

funds that focus on ESG-related 

engagement with the issuers in which 

they invest, and funds that seek to 

achieve a particular ESG impact, would 

be required to provide more detailed 

information in a tabular format.42 The 

proposed amendments would apply to 

open-end funds (including ETFs) and 

closed-end funds (including business 

development companies (‘‘BDCs’’)) that 

incorporate one or more ESG factors 

into their investment selection 

process.43

1. We are not proposing to define 

‘‘ESG’’ or similar terms and, instead, we 

are proposing to require funds to 

disclose to investors (1) how they 

incorporate ESG factors into their 

investment selection processes and (2) 

how they incorporate ESG factors in 

their investment strategies. Is this 

approach appropriate? Should we seek 

to define ‘‘ESG’’ or any of its subparts 

in the forms? Should we provide a nonexhaustive list of examples of ESG 

factors in the forms? Should we define 

certain types of factors as being ESG but 

allow funds to add additional factors to 

that concept if they choose? Are there 

any other approaches that we should 

take in providing guidance to funds as 

to what constitutes ESG? 

2. Should these disclosure 

requirements apply to registered openend funds, registered closed-end funds, 

and BDCs, as proposed? Are there other 

substantive disclosure requirements that 

should differ based on the type of fund? 

Should our proposed disclosure 

requirements apply to insurance 

company separate accounts registered as 

management investment companies? 

(a) Proposed Integration Fund 

Disclosure 

We are proposing to require an 

Integration Fund to summarize in a few 

sentences how the fund incorporates 

ESG factors into its investment selection 

process, including what ESG factors the 

fund considers. For example, an 

Integration Fund might provide a brief 

narrative of how it incorporates factors, 

or provide an example to illustrate how 

it considers ESG factors with other 

factors.44 This disclosure would be in 

addition to the information funds 

currently are required to provide in 

their prospectuses about their 

investments, risks, and performance. 

Open-end funds would provide this 

information in the summary section of 

the fund’s prospectus, while closed-end 

funds, which do not use summary 

prospectuses, would disclose the 

information as part of the prospectus’s 

general description of the fund.45

An Integration Fund, for this purpose, 

would be a fund that considers one or 

more ESG factors along with other, nonESG factors in its investment decisions, 

but those ESG factors are generally no 

more significant than other factors in 

the investment selection process, such 

that ESG factors may not be 

determinative in deciding to include or 

exclude any particular investment in the 

portfolio. Such funds may select 

investments because those investments 

met other criteria applied by the fund’s 

adviser (e.g., investments selected on 

the basis of macroeconomic trends or 

company-specific factors like a price-toearnings ratio). 

We are proposing to require an 

Integration Fund to describe how it 

incorporates ESG factors into its 

investment selection process because 

we believe this is important information 

for investors that should be available for 

them to review in the same location in 

different funds’ prospectuses.46 At the 

same time, we are not proposing more 

extensive disclosure requirements in the 

summary prospectus. Requiring a more 

detailed discussion of ESG factors could 

cause an Integration Fund to 

overemphasize the role ESG factors play 

in the fund’s investment selection 

process by adding ESG disclosure 

requirements that could result in a more 

detailed description of ESG factors than 

other factors. This overemphasis could 

impede informed investment decisions 

because ESG factors discussed at length 

would not play a central role in the 

fund’s strategy.47 For these reasons, we 

are proposing a layered disclosure 

approach for Integration Funds. 

Specifically, we are proposing to 

complement the concise description 

discussed above with a more detailed 

description of how an Integration Fund 


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Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36661 

48See Proposed Instruction 1(a) to Item 9(b)(2) of 

Form N–1A [17 CFR 274.11A]; Proposed Instruction 

9.a(1) to proposed Item 8.2.e(2)(B) of Form N–2 [17 

CFR 274.11a–1]. 

49See supra Section II.A.1.3. (‘‘The Need for 

Specific ESG-Disclosure Requirements’’) 

(discussing why additional detail about the fund’s 

integration of ESG factors in its investment 

selection process is important and necessary as the 

lack of a more specific ESG-disclosure framework 

may result in a fund marketing or labelling itself as 

‘‘ESG,’’ ‘‘green,’’ or ‘‘sustainable’’ to attract 

investors even though the fund’s consideration of 

ESG-related features in its investment strategy is 

limited). 

50See Proposed Instruction 1(b) to Item 9(b)(2) of 

Form N–1A [17 CFR 274.11A]; Proposed Instruction 

9.a(2) to proposed Item 8.2.e(2)(B) of Form N–2 [17 

CFR 274.11a–1]. 51See infra at text accompanying footnote 119. 

incorporates ESG factors into its 

investment selection process in an 

open-end fund’s statutory prospectus or 

later in a closed-end fund’s 

prospectus.48 This more detailed 

description would provide information 

about the fund’s integration of ESG 

factors in its investment strategy to 

facilitate informed decision making by 

providing investors more detail about 

the extent to which the fund considers 

those ESG factors as compared to other 

factors in the fund’s investment 

selection process.49

In addition to this general 

requirement, which would apply to all 

ESG factors that a fund considers, we 

are proposing a specific requirement for 

Integration Funds that consider GHG 

emissions to provide more detailed 

information in the fund’s statutory 

prospectus or later in a closed-end 

fund’s prospectus. Specifically, if an 

Integration Fund considers the GHG 

emissions of portfolio holdings as one 

ESG factor in the fund’s investment 

selection process, we are proposing to 

require such a fund to describe how the 

fund considers the GHG emissions of its 

portfolio holdings.50 This disclosure 

must include a description of the 

methodology that the fund uses as part 

of its consideration of portfolio 

company GHG emissions. For example, 

an Integration Fund that considers GHG 

emissions might disclose that it 

considers the GHG emissions of 

portfolio companies within only certain 

‘‘high emitting’’ market sectors, such as 

the energy sector. The fund in this 

example would also be required to 

describe the methodology it uses to 

determine which sectors would be 

considered ‘‘high emitting,’’ as well as 

the sources of GHG emissions data the 

fund relied on as part of its investment 

selection process. 

As discussed in more detail below, 

some investors have expressed 

particular demand for information on 

the ways in which funds consider GHG 

emissions as a factor in the investment 

selection process so that they can make 

better informed investment decisions, 

which can create an incentive for funds 

to overstate the extent to which 

portfolio company emissions play a role 

in the fund’s strategy and therefore 

warrants specific disclosure 

requirements regarding the process for 

integrating this data. Moreover, as 

discussed below, there has been 

increasing acceptance and convergence 

around particular methodologies for 

calculating certain GHG emissions 

metrics,51 but Integration Funds might 

vary substantially in how they utilize 

GHG emissions metrics data or 

otherwise consider portfolio company 

GHG emissions, which can impede 

informed decision-making if investors 

believe Integration Funds that consider 

GHG emissions do so in the same way 

or by reference to the same framework. 

We believe requiring more specific 

disclosure for Integration Funds that 

consider portfolio company GHG 

emissions, including the methodology 

the fund used for this purpose, will 

assist investors in better understanding 

how the fund integrates GHG emissions 

in its investment selection process and 

compare that process to that of other 

Integration Funds. 

We are proposing to require funds to 

place this information outside of an 

open-end fund’s summary prospectus 

and later in a closed-end fund’s 

prospectus where more detailed 

information is available on a range of 

topics to balance the need for investors 

to have access to this information while 

mitigating the risk of overemphasis of 

ESG factors by an Integration Fund as 

discussed above. 

We request comment on all aspects of 

our proposed approach to Integration 

Fund disclosure, including the 

following items: 

3. Is the proposed definition of an 

Integration Fund appropriate and clear? 

Are there other alternative definitions 

we should consider? For example, is the 

aspect of the definition specifying that 

ESG factors ‘‘may not be determinative 

in deciding to include or exclude any 

particular investment in the portfolio’’ 

sufficiently clear? Would it be clearer to 

provide that ESG factors are ‘‘not 

necessarily’’ determinative, or would 

that imply a greater role of ESG factors 

than may be the case for many 

integration funds? Is the proposed 

definition over- or under- inclusive? For 

example, are there funds that do not 

currently consider themselves to 

integrate ESG factors but would fall 

under this definition and be required to 

provide disclosures? Conversely, are 

there funds that do not meet the 

proposed definition that do consider 

themselves to integrate ESG factors? 

4. Will funds that engage in 

fundamental-oriented analysis, i.e., 

funds that analyze a portfolio 

company’s value by examining related 

economic and financial factors about 

their portfolio companies generally, 

consider themselves to be Integration 

Funds? Should such funds be 

Integration Funds because of their longstanding considerations of governance 

factors in their investment selection 

processes? For ESG disclosure 

requirements, should there be an 

Integration Fund category, as proposed, 

or should we limit disclosure 

requirements to ESG-Focused Funds? 

Alternatively, should there be 

additional categories of funds other than 

Integration Funds, ESG-Focused Funds, 

and Impact Funds, as proposed? 

5. Should we, as proposed, require an 

Integration Fund to provide a brief 

description of how the fund 

incorporates any ESG factors into its 

investment selection process, including 

what ESG factors the fund incorporates? 

Should we require a fund to include 

example(s)? Should we require a 

specific type of example? What 

additional disclosure about an 

Integration Fund would be helpful for 

an investor? Where should that 

additional disclosure be located? 

6. Should we, as proposed, require an 

Integration Fund that considers the GHG 

emissions of its portfolio holdings as an 

ESG factor in its investment selection 

process, to disclose how it considers the 

GHG emissions of its portfolio holdings? 

Should the description, as proposed, 

include a description of the 

methodology such a fund uses for this 

purpose? Would investors find this 

narrative disclosure useful to make 

better informed investment decisions? 

Should we require Integration Funds to 

disclose quantitative information or 

other GHG metrics, in addition to or in 

lieu of, the narrative disclosure? If so, 

what type of quantitative information of 

GHG metrics should be disclosed? For 

instance, should we require Integration 

Funds that consider GHG emissions as 

a part of their investment selection 

process to disclose the same 

standardized GHG metrics we are 

requiring of certain ESG-Focused 

Funds? Would such quantitative data be 

useful to investors? 

7. Should Integration Funds provide 

the tabular disclosure we are proposing 

for ESG-Focused Funds, as discussed 

below? Would that disclosure 

overemphasize the role ESG factors play 

in an Integration Fund’s portfolio or, 


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36662 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

52See Proposed Item 4(a)(2)(i)(B) of Form N–1A 

[17 CFR 274.11A]; Proposed Item 8.2.e.(1)(B) of 

Form N–2 [17 CFR 274.11a–1]. 

53While we are not suggesting any ESG-related 

minimum characteristics that such index or screen 

would have, an ESG-Focused Fund that uses the 

index or screen to focus on one or more ESG factors 

by using them as a significant or main consideration 

in selecting investments would be required, as 

discussed below, to provide disclosure about the 

index or screen under our proposed amendments. 

54See infra at section II.A.1.b.3 for the discussion 

of what we propose constitutes engagement for 

these purposes. 

55For purposes of the proposed definition of an 

ESG-Focused Fund, the term ‘‘advertisements’’ is 

defined pursuant to 17 CFR 230.482 under the 

Securities Act of 1933, and the term ‘‘sales 

literature’’ is defined pursuant to 17 CFR 270.34b– 

1 under the Investment Company Act of 1940. 

56For example, ABC Solar Energy ETF invests in 

the securities that comprise the XYZ solar index. 

Because the fund has a name that indicates it 

considers ESG factors based on the industry in 

which the fund invests, the fund would be required 

to provide the proposed ESG-Focused Fund 

disclosure. As another example, DEF Growth Fund 

has sales materials that state it focuses on 

companies that ‘‘provide solutions to sustainability 

challenges.’’ DEF Growth Fund would be required 

to provide the ESG-Focused Fund disclosure 

because its marketing materials indicate that 

‘‘sustainability’’ is a significant consideration in 

selecting investments. Providing the proposed 

disclosure for ESG-Focused Funds would not 

provide assurance or a safe harbor that such name 

or marketing materials are not materially deceptive 

or misleading. Funds must continue to consider the 

application of the Federal securities laws including, 

but not limited to, the general antifraud provisions 

and the names rule to their name or other marketing 

materials. See Names Rule Proposing Release, supra 

footnote 47. 

57Proposed Item 4(a)(2)(i)(C) of Form N–1A [17 

CFR 274.11A]; Proposed Item 8.2.e.(1)(C) of Form 

N–2 [17 CFR 274.11a–1]. 

conversely, would investors find the 

disclosure informative? 

8. Is the placement of the proposed 

disclosure appropriate for funds? If not, 

is there a different place that would be 

more appropriate? 

9. We are proposing to require an 

Integration Fund to provide a brief 

disclosure in the summary section of an 

open-end fund’s prospectus and in the 

general description of the fund for a 

closed-end fund. The brevity of this 

disclosure is designed to avoid giving 

investors the impression that Integration 

Funds incorporate ESG factors more 

than they actually do as a result of 

lengthy ESG disclosure. Is it feasible for 

funds to meet the elements of the 

proposed disclosure requirement with a 

brief description or example? If not, 

should we modify any aspects of the 

disclosure requirements to promote 

brevity? Should we impose a word limit 

or use another method to ensure brevity, 

beyond including the general 

requirement that the disclosure be brief? 

Are there other ways to ensure balanced 

disclosure that would not 

overemphasize the role of ESG factors 

while also fostering meaningful 

disclosure about ESG factors? 

Conversely, should we delete the 

requirement that the disclosures be 

brief? 

10. A fund is permitted to add a 

statement of its investment objectives, a 

brief description of its operations, or 

any additional information on its front 

cover page. That other information may 

include a text or design feature. Should 

we address a fund’s use of a text or 

design feature on its front cover page? 

For example, should we provide that it 

would be materially deceptive and 

misleading for an Integration Fund to 

use a text or design feature on its front 

cover page that implies a focus on one 

or more ESG factors? Should we place 

limitations on the ability of an 

Integration Fund to use a text or design 

feature on its front cover page to 

indicate that the fund’s investment 

decisions incorporate one or more ESG 

factors on the basis that such features 

might be misleading? Conversely, are 

there other formatting requirements that 

would help improve the salience and 

prominence, such as font size and 

bolding, that we should address? 

11. Should we, as proposed, require 

an Integration Fund to provide a more 

detailed description of how the fund 

incorporates ESG factors into its 

investment selection process in an 

open-end fund’s statutory prospectus or 

later in a closed-end fund’s statutory 

prospectus? Would investors find this 

information useful for understanding 

the ESG integration process? Would this 

information overemphasize the extent to 

which an Integration Fund considers 

ESG factors in its investment selection 

process? Would the layered disclosure 

format that we are proposing be 

appropriate for Integration Funds? 

Should all or more information about 

the fund’s ESG integration process be in 

the summary section of the prospectus? 

Conversely, should we require 

Integration Funds to put most or all of 

the information about their ESG 

integration process in the statutory 

prospectus (or, for closed-end funds, 

later in the prospectus), as proposed? 

(b) Proposed ESG-Focused Fund 

Prospectus Disclosure 

We are proposing to require an ESGFocused Fund, which would include an 

ESG Impact Fund, to provide specific 

disclosure about how the fund focuses 

on ESG factors in its investment 

process. An ‘‘ESG-Focused Fund’’ 

would mean a fund that focuses on one 

or more ESG factors by using them as a 

significant or main consideration (1) in 

selecting investments or (2) in its 

engagement strategy with the companies 

in which it invests.52 Thus, ESGFocused Funds under this proposed 

definition would include, for example, 

funds that track an ESG-focused index 

or that apply a screen to include or 

exclude investments in particular 

industries based on ESG factors.53 The 

category would likewise include a fund 

that has a policy of voting its proxies 

and engaging with the management of 

its portfolio companies to encourage 

ESG practices or outcomes.54

Additionally, to help ensure that any 

fund that markets itself as ESG provides 

sufficient information to investors to 

support the claim, the proposed 

definition of an ESG-Focused Fund 

explicitly includes (i) any fund that has 

a name including terms indicating that 

the fund’s investment decisions 

incorporate one or more ESG factors and 

(ii) any fund whose advertisements or 

sales literature indicates that the fund’s 

investment decisions incorporate one or 

more ESG factors by using them as a 

significant or main consideration in 

selecting investments.55 Accordingly, 

any fund that markets itself, whether 

through its name or marketing materials 

as having an ESG focus, would be 

required to provide the proposed ESG 

Strategy Overview Table discussed 

below.56 We believe this aspect of the 

proposed definition can help deter 

funds from making exaggerated claims 

by requiring funds that market 

themselves as, for example, ‘‘ESG,’’ 

‘‘green,’’ ‘‘sustainable,’’ or ‘‘socially 

conscious’’ to provide specific 

information in their prospectuses to 

substantiate such claims. 

A fund’s use of advertisements or 

sales literature that mention ESG 

factors, but not as a ‘‘significant or main 

consideration’’ in the fund’s investment 

or engagement strategy, would not alone 

cause the fund to be an ESG-Focused 

Fund. This aspect of the proposed 

definition of an ESG-Focused Fund 

would permit Integration Funds to 

discuss the role of ESG factors in their 

advertisements or sales literature— 

including the relationship between ESG 

factors and other investment factors and 

that ESG factors might not be 

dispositive—while deterring marketing 

materials that imply that ESG factors are 

a significant or the main consideration 

of a fund. 

We also propose to define an ‘‘Impact 

Fund’’ as an ESG-Focused Fund that 

seeks to achieve a specific ESG impact 

or impacts.57 For example, a fund that 

invests with the goal of seeking current 

income while also furthering the fund’s 

disclosed goal of financing the 

construction of affordable housing units 

would be an Impact Fund under the 


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58See infra at Section II.A.1.b.(2). 

59Proposed Item 4(a)(2)(ii)(B), Instruction 1 of 

Form N–1A [17 CFR 274.11A]; Proposed Item 

8.2.e.(2)(B), Instruction 1 of Form N–2 [17 CFR 

274.11a–1] (providing that the ESG Strategy 

Overview table would precede the risk/return 

summary (for open-end funds) or discussion of the 

fund’s organization and operation (for closed-end 

funds), and disclosure in the table need not be 

repeated in the narrative disclosure that will follow 

the table in the risk/return summary of discussion 

of the fund’s organization and operation). 

proposal. A fund that invests with the 

goal of seeking to advance the 

availability of clean water by investing 

in industrial water treatment and 

conservation portfolio companies is 

another example of an Impact Fund 

under the proposal. As these examples 

illustrate, an Impact Fund’s stated goal 

of pursuing a specific impact is what 

would distinguish Impact Funds under 

the proposal from other ESG-Focused 

Funds. An Impact Fund would be 

required to provide the disclosures 

proposed for all ESG-Focused Funds. 

Additionally, and as discussed further 

below, an Impact Fund would have 

additional disclosure requirements, 

including how the fund measures 

progress towards the stated impact; the 

time horizon used to measure that 

progress; and the relationship between 

the impact the fund is seeking to 

achieve and the fund’s financial 

returns.58 We believe additional 

disclosure requirements are appropriate 

for these funds to clarify the impact the 

fund is seeking to achieve as well as to 

allow investors to evaluate the fund’s 

progress in achieving that impact. 

ESG-Focused Funds would provide 

key information about their 

consideration of ESG factors in a tabular 

format—an ESG Strategy Overview 

table—in the fund’s prospectus. An 

open-end fund would be required to 

provide the disclosure at the beginning 

of its ‘‘risk/return summary,’’ the 

section of the prospectus that 

summarizes key information about the 

fund’s investments, risk and 

performance, while a closed-end fund 

would provide the table at the beginning 

of the discussion of the fund’s 

organization and operation.59 The 

disclosure would be in the following 

tabular format: 

Requiring all ESG-Focused Funds to 

provide concise disclosure, in the same 

format and same location in the 

prospectus, is designed to provide 

investors a clear, comparable, and 

succinct summary of the salient features 

of a fund’s implementation of ESG 

factors. This information would help an 

investor determine if a given ESGFocused Fund’s approach aligns with 

the investor’s goals. We are proposing 

consistent titles in the rows of the table 

to help investors to compare and 

analyze different ESG-Focused Funds 


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[ESG] Strategy Overview 

The Fund engages in the following to implement its [ESG] Strategy: 

□ Tracks an index 

□ Applies an inclusionary screen 

□ Applies an exclusionary screen 

□ Seeks to achieve a specific impact 

□ Proxy voting 

□ Engagement with issuers 

□ Other 
36664 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

60Proposed Item 4(a)(2)(ii)(B), Instruction 3 of 

Form N–1A [17 CFR 274.11A]; Proposed Item 

8.2.e.(2)(B), Instruction 3 of Form N–2 [17 CFR 

274.11a–1]. A fund would be allowed to replace 

‘‘ESG’’ in each row with another term that more 

accurately describes the applicable ESG factors the 

fund considers. Similarly, a fund would be 

permitted to replace the term ‘‘the Fund’’ in each 

row with an appropriate pronoun, such as ‘‘we’’ or 

‘‘our.’’ Id. 

61Proposed Item 9(b)(2), Instruction 2 of Form N– 

1A [17 CFR 274.11A]; Proposed Item 8.2.e.(2)(B). 

Instruction 9.b of Form N–2 [17 CFR 274.11a–1]. 

62Proposed Item 4(a)(2)(ii)(B), Instruction 3 of 

Form N–1A [17 CFR 274.11A]; Proposed Item 

8.2.e.(2)(B), Instruction 3 of Form N–2 [17 CFR 

274.11a–1]. 

63Proposed Item 4(a)(2)(ii)(B), Instruction 4 of 

Form N–1A [17 CFR 274.11A]; proposed Item 

8.2.e.(2)(B) Instruction 4 of Form N–2 [17 CFR 

274.11a–1]. 

64 Id. 

more easily as they make investment 

decisions.60

To facilitate a layered disclosure 

approach, the amendments would 

require an ESG-Focused Fund to 

complete each row with the brief 

disclosure required by that row—and 

only the information required by the 

relevant form instructions—with 

lengthier disclosure or other available 

information required elsewhere in the 

prospectus.61 In an electronic version of 

the prospectus, that is, a prospectus 

posted on the fund’s website, 

electronically delivered to an investor, 

or filed on EDGAR with the 

Commission, the fund also would be 

required to provide hyperlinks in the 

table to the related, more detailed 

disclosure later in the prospectus to 

help investors easily access the 

information.62 We discuss the 

disclosure that would be required by 

each row of the table further below. 

We request comment on all aspects on 

the proposed definitions of ESGFocused Fund and Impact Fund, the 

general approach to layered disclosure 

and the design of the ESG Strategy 

Overview Table, including the following 

items: 

12. Are there additional distinctions 

that the disclosure rules should make 

besides the proposed distinctions 

between Integration Funds and ESGFocused Funds, as proposed, for the 

level of detail required in prospectus 

disclosures? 

13. Should we, as proposed, define an 

ESG-Focused Fund as a fund that 

focuses on one or more ESG factors by 

using them as a significant or main 

consideration in selecting its investment 

or its engagement strategy with issuers 

of its investments? 

14. As discussed above, a fund that 

applies a screen to include or exclude 

investments based on ESG factors would 

meet the proposed definition of an ESGFocused Fund. Should our definition of 

an ESG-Focused Fund specifically 

reference a fund that follows an ESGrelated index or a screen based on ESG 

factors to include or exclude 

investments? Should our definition take 

into account whether a fund’s use of an 

ESG-related index or screen is to 

promote ESG goals? Should the 

reference to engagement be a means of 

identifying Impact Funds, rather than 

ESG-Focused Funds generally? 

15. Should we include the proposed 

elements in the definition of ESGFocused Fund related to the use of ESGrelated names or advertising or other 

materials? In particular, does the 

proposed definition provide appropriate 

flexibility to allow an Integration Fund 

to describe its integration process 

accurately in advertising or other 

materials, while assuring that funds that 

market themselves as having an ESG 

focus provide sufficient information to 

support such claim? 

16. An Integration Fund may be 

categorized by a third-party marketer or 

a third-party rater as an ESG-Focused 

Fund. Are there circumstances where 

we should attribute the third party 

characterization to the fund and require 

the fund to report as an ESG-Focused 

Fund? For example, should we require 

such reporting if the fund’s adviser has 

explicitly or implicitly endorsed or 

approved the information after its 

publication (such as by including it in 

the fund’s marketing materials), or has 

involved itself in the preparation of the 

information? 

17. Would the ESG Strategy Overview 

table’s layered disclosure approach 

provide a concise presentation for 

investors who want a comprehensive 

summary of ESG-related aspects of the 

fund in one place, with more detailed 

information available later in the 

prospectus? Are there alternatives that 

would be more helpful to investors? 

18. Should we, as proposed, limit the 

disclosure in the ESG Strategy Overview 

Table to the information required by the 

instructions? Is there any information 

we should permit but not require? 

19. Should we, as proposed, require 

that the ESG Strategy Overview table 

precede the other disclosure required in 

the section of the prospectus to which 

we propose to add the table (i.e., Item 

4(a)(2)(ii)(B) of Form N–1A or proposed 

Item 8.2.e.(2)(B) of Form N–2)? 

20. Since closed-end funds do not 

have a summary section of the 

prospectus, we have proposed an 

alternative approach by requiring the 

ESG Strategy Overview Table to precede 

other disclosures in that Item 8.2.e.(2) of 

the prospectus, while permitting the 

more detailed ESG information to be 

disclosed later in the same item. Is this 

approach appropriate for closed-end 

funds? Are there alternatives we should 

consider? 

21. Should we require a fund to 

provide a cross-reference or hyperlink 

in the prospectus to other parts of the 

registration statement, as proposed? Are 

there other sections of the registration 

statement where we should permit an 

ESG-Focused Fund to provide a crossreference or hyperlink? If so, to what 

sections should we permit an ESGFocused Fund to provide that crossreference or hyperlink in the registration 

statement? 

22. Should we, as proposed, permit a 

fund to replace the term ‘‘ESG’’ in the 

ESG Strategy Overview table with 

another term or phrase that more 

accurately describes the ESG factors that 

the fund considers? Should a fund be 

required to replace ESG with a different 

term in certain circumstances, such as 

when it focuses on a particular issue or 

set of issues? Should we mandate that 

funds choose from a list of alternative 

terms to improve comparability, and, if 

so, what terms should those be? 

23. Should we allow flexibility in 

how funds label each row in the table 

beyond the flexibility provided 

regarding the term ESG and the 

pronouns used? 

24. Should ESG-Focused Funds 

disclose information other than what we 

have proposed about their ESG strategy? 

By contrast, is there any of the proposed 

disclosures that an ESG-Focused Fund 

would make that should not be adopted 

by the Commission? 

Overview of the Fund’s ESG Strategy 

First, in the row ‘‘Overview of [the 

Fund’s] [ESG] strategy,’’ we are 

proposing that an ESG-Focused Fund 

provide a concise description in a few 

sentences of the factor or factors that are 

the focus of the fund’s strategy.63 For 

example, a fund might disclose that it 

focuses on environmental factors, and in 

particular, on greenhouse gas emissions. 

Further, the fund would be required to 

include a list of common ESG strategies 

as indicated in the ESG Strategy 

Overview table and, in a ‘‘check the 

box’’ style, indicate all strategies in that 

list that apply.64 These check boxes 

would identify common ESG strategies, 

namely, the tracking of an index, the 

application of an exclusionary or 

inclusionary screen, impact investing, 

proxy voting, and engagement with 

issuers. An ESG-Focused Fund would 

not be required to check any of the 

boxes if none of the common ESG 

strategies applied to the fund, and 

instead, would check the ‘‘other’’ box. 


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65Proposed Item 4(a)(2)(ii)(B), Instruction 5 of 

Form N–1A [17 CFR 274.11A]; Proposed Item 

8.2.e.(2)(B), Instruction 5 of Form N–2 [17 CFR 

274.11a–1]. 

66Open-end funds would provide the additional 

information in response to Item 9 of Form N–1A, 

as we propose to amend it, which covers a fund’s 

investment objectives, principal investment 

strategies, related risks, and portfolio holdings. 

Closed-end funds would provide the additional 

information in response to Item 8 of Form N–2, as 

we propose to amend it, which requires a general 

description of the fund, including its investment 

objectives and policies and other matters. Proposed 

Item 9(b)(2), Instruction 2 of Form N–1A [17 CFR 

274.11A]; Proposed Item 8.2.e.(2)(B), Instruction 9 

of Form N–2 [17 CFR 274.11a–1]. 

67Proposed Item 4(a)(2)(ii)(B), Instruction 4 of 

Form N–1A [17 CFR 274.11A]; Proposed Item 

8.2.e.(2)(B), Instruction 4 of Form N–2 [17 CFR 

274.11a–1]. 

68 Id. 

69 Id. 

This ‘‘check the box’’ presentation is 

designed to allow an investor 

immediately to identify the ESG 

strategies a fund employs. Together, the 

disclosure in this row is designed to 

help investors quickly compare different 

funds’ area of focus and approaches to 

ESG investing and to provide context for 

the more specific disclosure in the rows 

that follow. 

25. Should we, as proposed, require 

an ESG-Focused Fund to provide a 

concise description in a few sentences 

of the ESG factor or factors that are the 

focus of the fund’s strategy? Is beginning 

the table with an overview helpful? 

Would it give investors a way to quickly 

discern the particular ESG-focus of the 

fund? 

26. Should we, as proposed, require 

funds to include the types of common 

ESG strategies in a ‘‘check box’’ format? 

Is this format useful to an investor so 

that the investor can quickly and easily 

understand the fund’s ESG strategy and 

compare it with the ESG strategies used 

by other funds? Alternatively, as 

opposed to listing all the strategies and 

checking the ones that apply, should 

funds list only the ESG strategies that 

apply to them? 

27. Should the instructions include 

definitions or descriptions for each 

common strategy on the list, or are they 

sufficiently self-explanatory? 

28. Would there be instances where a 

fund might face ambiguity as to whether 

a strategy on the list accurately 

describes a technique the fund utilizes? 

For example, are there instances where 

it might be ambiguous whether a fund 

applies an inclusionary or exclusionary 

screen? If so, is there alternative 

disclosure a fund should provide? 

29. Are there any common ESG 

strategies that should be included on the 

list, or any that we proposed that should 

be excluded? Would the ‘‘other’’ box, as 

proposed, be helpful in allowing funds 

to identify that they pursue a strategy 

other than those specified in the other 

check boxes or, conversely, would that 

result in funds tending to select ‘‘other’’ 

and making the check-box disclosure 

less informative to investors? 

30. The ESG Strategy Overview table 

provides a number of check boxes for 

common ESG strategies. Does the 

number of those check boxes present the 

possibility that a fund could overstate 

and/or present the appearance to an 

investor of overstating the fund’s ESG 

strategy because of the number of those 

check boxes? Should certain of those 

check boxes be combined? If so, which 

ones? Are there other alternatives to the 

check boxes that would be consistent 

with the disclosure goals of the check 

boxes? 

(1) Description of the Fund’s 

Incorporation of Any ESG Factors in 

Investment Decisions 

Second, in the row ‘‘How the Fund 

incorporates [ESG] factors in its 

investment decisions,’’ we are 

proposing that an ESG-Focused Fund 

summarize how it incorporates ESG 

factors into its process for evaluating, 

selecting, or excluding investments.65

Funds would be required to provide 

specific information in this row and 

supplement the overview in this row 

with a more detailed description later in 

the prospectus.66 The fund would 

provide specific information, in a 

disaggregated manner, with respect to 

each of the common ESG strategies 

applicable to the fund as identified by 

the ‘‘check the box’’ disclosure.67 For 

example, a fund would have to explain 

an inclusionary screen distinctly from 

an exclusionary screen. To help ensure 

this information would be presented in 

a clear format, a fund would be 

permitted to use multiple rows in the 

table or other text features to clearly 

identify the disclosure related to each 

applicable common ESG strategy.68 We 

discuss below each of the disclosures 

that would be required in this row, if 

applicable. 

First, if the fund applies an 

inclusionary or exclusionary screen to 

select or exclude investments, the 

fund’s summary must briefly explain 

the factors the screen applies, such as 

particular industries or business 

activities it seeks to include or exclude, 

and if applicable, what exceptions apply 

to inclusionary or exclusionary 

screen.69 In addition, such fund would 

be required to state the percentage of the 

portfolio, in terms of net asset value, to 

which the screen applies, if less than 

100%, excluding cash and cash 

equivalents held for cash management 

and to explain briefly why the screen 

applies to less than 100% of the 

portfolio. 

We understand that many ESGFocused Funds commonly apply 

inclusionary or exclusionary screens to 

select investments based on ESG 

criteria. A fund applying an 

inclusionary screen would use the 

screen to select investments based on 

the fund’s ESG criteria. This includes, 

for example, funds that select 

companies that perform well relative to 

their industry peers based on ESG 

factors, such as greenhouse gas 

emissions or workforce diversity. 

Conversely, a fund applying an 

exclusionary screen would start with a 

given universe of investments and then 

exclude investments based on ESG 

criteria, such as by excluding 

investments in companies that operate 

in certain industries or that engage in 

certain activities. 

Requiring funds that apply 

inclusionary or exclusionary screens to 

explain briefly the factors the screen 

applies, as well as the percentage of the 

portfolio covered by the screen if 

applicable, is designed to help investors 

understand how ESG factors guide the 

fund’s investment decisions. A fund 

applying an inclusionary screen to 

select investments based on a 

company’s performance on certain ESG 

factors relative to peers in its sector 

might disclose an overview of this 

process and the primary ESG factors it 

considers to select investments. A fund 

applying an exclusionary screen might 

disclose, for example, that it invests in 

the securities of a given index, 

excluding companies in the index that 

derive significant revenue from the 

extraction or refinement of fossil fuels 

or sale of alcohol. This would allow an 

investor to understand the kinds of 

investments a fund was focusing on or 

avoiding and determine if the fund’s 

approach aligned with the investor’s 

own view of ESG investing. Finally, we 

are proposing to require a fund to state 

the percentage of the portfolio, in terms 

of net asset value, to which the screen 

is applied, if less than 100%, excluding 

cash and cash equivalents held for cash 

management, and to explain briefly why 

the screen applies to less than 100% of 

the portfolio. We believe that knowing 

that a portion of the portfolio is selected 

without regard to a particular screen 

would be important to an investor so 

that the investor would understand the 

extent to which the fund considers ESG 

factors. We propose to provide an 

exception for cash management to make 

clear that funds that generally apply the 

screen to their entire portfolio do not 

have to include disclosure in this row 

regarding small portions held for 


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36666 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

70Proposed Item 9(b)(2)(d) of Form N–1A [17 CFR 

274.11A]; Proposed Item 8.2.e.(2)(B), Instruction 

9.b.(4) of Form N–2 [17 CFR 274.11a–1]. 

71 Id. 

72See infra section II.A.1.b. 

73See supra footnote 33 and accompanying text. 

74Proposed Item 9(b)(2), Instruction 2 of Form N– 

1A [17 CFR 274.11A]; Proposed Item 8.2.e.(2)(B), 

Instruction 9.b of Form N–2 [17 CFR 274.11a–1]. 

75 Id. 

76Proposed Item 4(a)(2)(ii)(B), Instruction 5.(c) of 

Form N–1A [17 CFR 274.11A]; Proposed Item 

8.2.e.(2)(B), Instruction 5.c. of Form N–2 [17 CFR 

274.11a–1]. 

77Proposed Item 4(a)(2)(ii)(B), Instruction 5(a) of 

Form N–1A [17 CFR 274.11A]; proposed amended 

Item 9(b)(2), Instruction 2(a) of Form N–1A [17 CFR 

274.11A]; Proposed Item 8.2.e.(2)(B), Instruction 

9.b.(1) of Form N–2 [17 CFR 274.11a–1]. 

78Proposed Item 4(a)(2)(ii)(B), Instruction 6 of 

Form N–1A [17 CFR 274.11A]; Proposed Item 

8.2.e.(2)(B), Instruction 6 of Form N–2 [17 CFR 

274.11a–1]. 

79These standards are just examples included for 

illustrative purposes. More information about the 

UN SDG is available at https://sdgs.un.org/goals. 

More information about the UN PRI is available at 

https://www.unpri.org. 

80Proposed Item 9(b)(2), Instruction 2(e) of Form 

N–1A [17 CFR 274.11A]; Proposed Item 8.e.2.(2)(B), 

Instruction 9.b.(5) of Form N–2 [17 CFR 274.11a– 

1]. 

operational purposes, such as meeting 

redemptions. 

As with other items discussed in this 

row, the fund also would be required to 

provide a more detailed description of 

any inclusionary or exclusionary screen 

later in the prospectus. That disclosure 

would cover the factors applied by any 

inclusionary or exclusionary screen, 

including any quantitative thresholds or 

qualitative factors used to determine a 

company’s industry classification or 

whether a company is engaged in a 

particular activity.70 This disclosure 

would allow an investor that is 

interested in the additional detail to 

understand how a fund applies the 

inclusionary or exclusionary screen. To 

build on the examples above, the fund 

might disclose in the prospectus how it 

analyzes whether a company derives 

significant revenue from the extraction 

or refinement of fossil fuels or sale of 

alcohol, including how a fund defines 

‘‘significant’’ for this purpose, such as a 

specific percentage of a company’s 

revenue derived from fossil fuels or 

alcohol. 

Second, if the fund uses an internal 

methodology, a third-party data 

provider, or a combination of both, in 

evaluating, selecting, or excluding 

investments, the fund’s disclosure in 

this row must describe how the fund 

uses the methodology, third-party data 

provider, or combination of both, as 

applicable.71 We understand that some 

ESG-Focused Funds evaluate, select, or 

exclude investments using internal 

methodologies, and/or base their 

investment decisions, at least in part, on 

the data or analysis of a third-party data 

provider, such as scoring or ratings 

provider, that evaluates or scores 

portfolio companies based on the 

provider’s ESG criteria. This disclosure, 

if applicable, would help an investor 

understand how these methodologies 

and/or providers guide the fund’s 

investment decisions. Specifically, we 

understand that different advisers or 

third-party data providers conducting 

internal analyses can disagree on how to 

analyze how companies fare on various 

ESG factors.72 Accordingly, funds that 

have a similar ESG strategy and focus 

could have different, sometimes even 

contradicting, views on an investment 

depending on the analysis the funds 

conduct or the third-party data provider 

they use.73 The required disclosures 

protect investors by providing them 

detailed information to help determine 

whether the fund’s process for analyzing 

investments aligns with the ESG-related 

priorities of the investor. 

In addition, because the description of 

an internal methodology or third-party 

data provider’s methodology can be 

lengthy, the summary in the table would 

be complemented by a more detailed 

description later in the prospectus.74

There, the fund would provide, if 

applicable, a more detailed description 

of any internal methodology used and 

how that methodology incorporates ESG 

factors. If the fund used a third-party 

data provider, the fund would provide 

a more detailed description of the 

scoring or ratings system used by the 

third-party data provider. We believe 

the placement of information about 

additional third-party data providers 

later in the prospectus balances the 

benefits of the information to investors 

regarding the use of third-party data 

providers generally, while encouraging 

brevity in the ESG Strategy Overview 

Table and limiting disclosure to those 

analyses most likely to directly 

influence investment selection. For both 

scoring providers and other third-party 

data providers, the disclosure would be 

required to include how the fund 

evaluates the quality of the data from 

such provider, which we believe would 

help protect investors by allowing them 

to assess the reliability of the 

information and the extent of the 

independent analysis performed by the 

fund’s adviser.75

Third, if the fund tracks an index, the 

summary must identify the index and 

briefly describe the index and how it 

utilizes ESG factors in determining its 

constituents.76 For example, a fund 

tracking the XYZ Sustainability Index 

would disclose that it tracks this index 

and provide an overview of the kinds of 

companies included in the index. This 

would inform an investor that the fund’s 

investments are driven by the 

composition of the index, as well as 

how that index is constructed. 

Because the description of an index’s 

methodology can be lengthy, the 

summary in the table would be 

complemented by a more detailed 

description later in the prospectus. 

Specifically, a fund tracking an index 

also would provide later in the 

prospectus the index’s methodology, 

including any criteria or methodologies 

for selecting or excluding components 

of the index that are based on ESG 

factors.77 The disclosure in the ESG 

Strategy Overview table would give 

investors an overview of the index’s 

construction—and thus the fund’s 

investments—with additional 

information in the prospectus about the 

index methodology thereby protecting 

investors by providing them sufficient 

information to determine whether an 

index’s methodology aligns with the 

ESG-related priorities of the investor. 

Finally, we are also proposing that an 

ESG-Focused Fund provide in this row 

an overview of any third-party ESG 

frameworks that the fund follows as part 

of its investment process.78 Consistent 

with our approach to the other 

disclosure items required by the row, 

the fund would provide an overview of 

those standards in the row, with the 

more detailed description of any 

applicable ESG framework and how it 

applies to the fund later in the 

prospectus. We recognize that many 

advisers to ESG-Focused Funds have 

expressed a commitment to follow 

frameworks, such as the United Nations 

Sustainable Development Goals (‘‘UN 

SDG’’) or the United Nations Principles 

for Responsible Investing (‘‘UN PRI’’).79

In these cases, requiring a fund to 

disclose that the fund’s investments will 

follow such a framework would help an 

investor understand how the fund 

considers such ESG frameworks in its 

investment strategy. For example, under 

the proposed amendments, a fund might 

disclose in its ESG Strategy Overview 

table that the fund’s investment 

objective is to seek long-term capital 

appreciation while also contributing to 

positive societal impact aligned to the 

UN SDG by limiting the fund’s 

investments to companies that 

contribute to at least one of those goals. 

The fund would then be required to 

disclose later in its prospectus more 

information about any UN SDG goal on 

which the fund focuses and how the 

fund determines that a portfolio 

company contributes to that goal.80


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Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36667 

We request comment on all aspects of 

our proposal with respect to disclosure 

by ESG-Focused Funds regarding 

investment selection disclosure for ESGFocused Funds, including the following 

items: 

31. Is there additional information 

concerning the investment selection 

process in addition to the proposed 

disclosures for ESG-Focused Funds that 

would be helpful to investors? Should 

we require that additional information 

be included in the table or in another 

disclosure item? Is there information in 

this proposed requirement that should 

not be in the table and should be placed 

elsewhere instead? Where should that 

information be placed, and how will the 

alternative locations(s) help ensure 

investors receive key information in a 

readily accessible location? 

32. Should we, as proposed, require 

that information with respect to each 

investment process be provided in a 

disaggregated manner if both apply? 

What manner of presentation of the 

information would be helpful to 

investors? 

33. Is the proposed level of disclosure 

and the division of that disclosure 

between the summary section of 

prospectus and statutory prospectus 

(i.e., Items 4 and 9 of Form N–1A) 

appropriate? Similarly, is the proposed 

level and the division of that disclosure 

between earlier and later in the 

prospectus (i.e., proposed Item 8.2.e.(2), 

Instruction 3 and Instruction 9 of Form 

N–2) appropriate? Is there information 

that we are proposing to require in the 

table that we should consider allowing 

to be disclosed later in the prospectus? 

Conversely, is there information that we 

are proposing to require later in the 

prospectus that we should require 

earlier in the prospectus? 

34. Is the information that we are 

proposing to require an ESG-Focused 

Fund to disclose about how the fund 

incorporates ESG factors into its 

investment process for evaluating, 

selecting, and excluding investments 

appropriate and sufficiently clear? 

35. Should we specifically require, as 

proposed, an ESG-Focused Fund to 

disclose in the ESG Overview Table 

whether it seeks to select or exclude 

issuers that engage in certain activities, 

or whether the fund seeks to select or 

exclude issuers from particular 

industries? 

36. Our proposed amendments 

include definitions of inclusionary and/ 

or exclusionary screens. Should those 

definitions be modified? Do definitions 

of the screens help a fund determine if 

its investment process is considered a 

screen for purposes of indicating the 

fund uses a screen as a strategy? Should 

we include examples of inclusionary or 

exclusionary screens? If so, what 

examples should the instructions 

include? 

37. As proposed, funds that apply an 

inclusionary or exclusionary screen 

would be considered an ESG-Focused 

Fund regardless of how extensive or 

narrow the screen is. For example, a 

fund that applies an exclusionary screen 

to just a few industries would be an 

ESG-Focused Fund and provide the ESG 

Strategy Overview Table. Should we 

prescribe how extensive an inclusionary 

or exclusionary screen must be in order 

for a fund applying the screen to be an 

ESG-Focused Fund under our proposed 

amendments? For example, if an 

exclusionary screen would exclude 

companies on the basis of an ESG 

criterion that involved such an unusual 

set of facts that no or few companies 

would be excluded, should that fund 

instead be considered an Integration 

Fund, requiring the more streamlined 

disclosure as opposed to a table? Do 

more limited screens raise concerns that 

investors would be misled into 

believing the screen is more 

comprehensive than it is? Conversely, 

would the required disclosures about 

the screen and the fund’s ESG investing 

generally address any such concerns if 

the fund were treated as an ESGFocused Fund? 

38. Should we, as proposed, require 

funds to describe any exceptions to their 

screening mechanism? How common is 

it for a fund that applies a screen to its 

investments to except certain 

investments from its screening 

mechanism, that is, to make investments 

that otherwise would be excluded by 

the screen? What methodologies or 

factors do funds have for processing 

such exceptions? Should that 

information be disclosed to investors, 

either in the ESG Strategy Table or 

elsewhere in the prospectus? 

39. Should we require all funds to 

disclose the percentage of the portfolio 

to which the screen applies, even if it 

is 100%? Are there funds that currently 

apply a screen only to a portion of their 

portfolio? Should we include an explicit 

requirement that the fund explain its 

approach to applying a screen to only 

part of a portfolio, as proposed? 

40. Should we, as proposed, require a 

fund that implements its ESG strategy 

by applying an inclusionary or 

exclusionary screen to disclose the 

percentage of the portfolio, in terms of 

net asset value, to which the screen is 

applied, if less than 100%, excluding 

cash and cash equivalents held for cash 

management? Should the scope of 

exclusions to which the screen would 

be applied be expanded, such as also 

excluding similar investments held for 

cash management and/or excluding the 

amount of any borrowings held for 

investment purposes? Is ‘‘cash 

management’’ sufficiently understood or 

would guidance about cash management 

be helpful? Alternatively, should we 

specify a percentage of any non-ESG 

assets, even if not for cash management, 

that would be considered de minimis 

and not need to be disclosed? 

41. Should we, as proposed, require 

funds to provide disclosure later in the 

prospectus about the factors applied by 

any inclusionary or exclusionary 

screen? Should such disclosure, as 

proposed, include the quantitative 

thresholds or qualitative factors used to 

determine a company’s industry 

classification or whether a company is 

engaged in a particular activity? Should 

any part of this information be required 

to be in the ESG Strategy Overview 

Table? Is there any other disclosure that 

we should require funds to provide, 

either in the ESG Strategy Overview 

Table or later in the prospectus relevant 

to a screen? 

42. Would the disclosure that we 

would be requiring in the fund’s 

statutory prospectus (e.g., Item 9 of 

Form N–1A) about the index 

methodology used and how that 

methodology incorporates ESG factors 

be difficult for retail investors to 

understand? Are there ways in which 

we could tailor those requirements to 

make that disclosure more useful at 

conveying information to help protect 

investors? Would an example be 

helpful? 

43. Should we, as proposed, require 

funds to disclose in the ESG Strategy 

Overview Table an overview of their use 

of third-party data providers, such as 

scoring or ratings providers and/or 

internal methodologies? Are there 

specific aspects of this disclosure that 

we should require in the table? Are 

there any competitive concerns with 

disclosing internal methodologies? Are 

there alternatives that would mitigate 

such concerns and still achieve the goal 

of helping investors understand the 

process of how ESG factors are used in 

investment selection? 

44. To what extent do funds use 

multiple third-party data providers? 

Should we permit or require funds to 

provide only the information about the 

fund’s primary third-party data provider 

(‘‘primary’’ in the sense that a fund 

utilizes that third-party data provider 

more than others when making 

investment decisions)? If so, should we 

provide additional instructions for 

funds to determine which scoring 

provider is the primary third-party data 

provider? Should we, as proposed, 


lotter on DSK11XQN23PROD with PROPOSALS3
36668 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

81Proposed Item 4(a)(2)(ii)(B), Instruction 7 of 

Form N–1A [17 CFR 274.11A]; Proposed Item 

8.2.e.(2)(B), Instruction 7 of Form N–2 [17 CFR 

274.11a–1]. In addition, an Impact Fund would 

have to state that it reports annually on its progress 

in achieving the impact in the Fund’s annual report. 

Proposed Item 27(b)(7)(i)(B) of Form N–1A [17 CFR 

274.11A]. 

82Proposed Instruction 2(f), Item 9(b)(2) of Form 

N–1A [17 CFR 274.11A]; Proposed Item 8.2.e.(2)(B), 

Instruction 9.b.(5) of Form N–2 [17 CFR 274.11a– 

1]. 

83Letter from Federated Hermes to Vanessa 

Countryman (May 5, 2020) (discussing the 

distinction between collateral benefits ESG and 

risk-return ESG and how that distinction turns on 

the investor’s motive, and attaching Max 

Schanzenbach and Robert Sitkoff ‘‘Reconciling 

Fiduciary Duty and Social Conscience: The Law 

and Economics of ESG Investing by a Trustee,’’ 72 

Stan. L. Rev. 381 (Feb. 2020)) submitted in Request 

for Comments on Fund Names, SEC File No. S7– 

04–20, available at https://www.sec.gov/comments/ 

s7-04-20/s70420-216512.pdf. 

require funds to disclose more detailed 

information later in the prospectus 

about a third-party data provider’s and/ 

or the fund’s internal methodologies? 

Does this requirement strike an 

appropriate balance for providing 

investors with complete information 

while providing investors an overview 

toward the beginning of the prospectus 

that is not overwhelming? Should we, as 

proposed, require funds to provide a 

description of their evaluation of the 

data quality from such providers? When 

a fund uses multiple third-party data 

providers, should the fund disclose how 

it considers conflicting assessments of 

companies by such providers? 

45. Would the proposed requirements 

regarding third-party data providers and 

internal methodologies produce 

disclosure that would be difficult for 

retail investors to understand? If so, are 

there ways in which we could tailor 

those requirements to make that 

disclosure more accessible for retail 

investors? Would an example of how 

the fund evaluates the quality of the 

third-party data provider’s ESG 

information/analysis be helpful? Are 

there other ways, such as through the 

use of various features (such as a chart, 

check-the-box, or bullet points) that 

might be useful in helping an investor 

to understand the disclosure? 

46. The disclosure, as proposed, about 

any index that an ESG-Focused Fund 

tracks to implement its ESG strategy is 

more information than what we require 

about other indexes that funds may 

track. Would this disclosure be useful to 

an investor? Would more or less 

information about how the fund tracks 

such ESG-focused index be useful to an 

investor? Are there alternatives to this 

proposed disclosure that we should 

consider? 

47. Would the disclosure, as 

proposed, about any index that the fund 

may track and how the index utilizes 

ESG factors in determining its 

constituents; any internal methodology 

or third-party data provider or 

combination thereof that the fund may 

use; or any inclusionary or exclusionary 

screen that the fund may apply be 

helpful to investors? Should any part of 

this information be required to be in the 

ESG Strategy Overview Table? 

48. Do third-party data providers and 

indexes currently provide funds with 

the information that we would be 

requiring ESG-Focused Funds to 

disclose later in their prospectuses? 

What are the costs to a fund to obtain 

and disclose this information from 

third-party providers? 

49. We are proposing that a fund 

disclose any third-party ESG 

frameworks it follows. Is the level of 

detail about that third-party ESG 

framework appropriate? Should we 

limit the scope of what is reported about 

the third-party ESG framework? If so, 

how? Is there other information about 

the third-party ESG framework that 

should be disclosed? If so, what types of 

information should be disclosed? Is 

there additional information about how 

the fund follows the third-party ESG 

framework that would be helpful? 

50. Are there any licensing or other 

issues that a fund would have to address 

if we were to require a fund to, as 

proposed, disclose information 

concerning a third-party data provider, 

index, or any third-party ESG 

framework? If so, what might those 

issues entail and how could we mitigate 

any concerns or costs while still 

providing investors with complete 

information about the ESG investment 

selection process? 

51. Are there any particular asset 

classes that ESG-Focused Funds would 

invest in that should have specific 

disclosure requirements? For example, 

are there any particular attributes of 

green bonds, social bonds and/or 

sustainability-linked bonds that warrant 

specific disclosures tailored to these 

investments? 

(2) Impact Fund Disclosure 

In addition to the proposed 

disclosures described above, an Impact 

Fund, i.e., a fund that selects 

investments to seek to achieve a specific 

ESG impact or impacts, would be 

required to provide in the row ‘‘How 

[the Fund] incorporates [ESG] factors in 

its investment decisions’’ an overview 

of the impact(s) the fund is seeking to 

achieve, and how the fund is seeking to 

achieve the impact(s). The overview 

must include (i) how the fund measures 

progress toward the specific impact, 

including the key performance 

indicators the fund analyzes, (ii) the 

time horizon the fund uses to analyze 

progress, and (iii) the relationship 

between the impact the fund is seeking 

to achieve and financial return(s).81 As 

with other proposed requirements, the 

fund would provide a more detailed 

description later in the prospectus to 

complement the overview provided in 

the ESG Strategy Overview Table.82

This information is designed to 

protect investors by providing them 

with specific information concerning 

the impact(s) the fund seeks to achieve. 

Requiring the fund to disclose the 

desired impact(s), as well as how the 

fund measures its progress toward 

achieving that impact and the related 

time horizon, is designed to help an 

investor to understand and evaluate 

what strategies the fund uses to achieve 

the impact(s). It also would address the 

risk of investors being misled through 

exaggerated ESG claims by 

distinguishing Impact Funds from other 

kinds of funds that have more general 

aspirations or goals, or from other ESGFocused Funds, particularly funds that 

primarily use inclusionary or 

exclusionary screens but without 

seeking to achieve any specific ESG 

impact. In addition, requiring the fund 

to disclose relationship between the 

impact(s) the fund is seeking to achieve 

and financial returns is designed to 

require funds to disclose, if true, that 

financial returns are secondary to 

achieving the fund’s stated impact—or 

conversely, that achieving the fund’s 

stated impact is intended to enhance 

financial returns.83 We believe an 

investor needs to understand this 

relationship to make an informed 

investment decision. 

For example, an Impact Fund might 

disclose that it seeks total return while 

pursuing investment opportunities that 

finance the construction of affordable 

housing units. The fund also would 

include how it measures progress 

toward this goal, such as disclosing that 

it reviews as a key performance 

indicator the number of affordable 

housing units it financed annually. 

Finally, the fund would discuss the 

relationship between its goal of 

financing affordable housing units and 

its goal of seeking total return over, for 

example, a ten-year period. We believe 

such information would allow an 

investor to evaluate if a fund’s specific 

impact(s) align with the investor’s own 

objectives and to understand how the 

fund assesses progress in achieving the 

impact. 

In addition to disclosure in the ESG 

Strategy Overview table, we also are 

proposing to require an Impact Fund to 


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Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36669 

84Proposed instruction to Item 2 of Form N–1A 

[17 CFR 274.11A]; Proposed Instruction 10 to Item 

8.2.e.(2)(B) of Form N–2 [17 CFR 274.11a–1]. 85Proposed Instruction 10 to Item 8.2.e.(2)(B) of 

Form N–2 [17 CFR 274.11a–1]. 

86See Letter from Morningstar to Chair Gensler 

(June 9, 2021) attaching Sustainable Funds U.S. 

Landscape Report—More funds, more flows, and 

impressive returns in 2020, Morningstar Manager 

Research (Feb. 19, 2021) available at https://

www.sec.gov/comments/climate-disclosure/cll12- 

8899329-241650.pdf; Climate Action 100+, 

available at https://www.climateaction100.org/ (an 

initiative of more than 370 institutional investors 

that uses proxy voting power to ensure action on 

climate change); see, e.g., Managers Wield Proxy 

Votes to Target Corporate Governance, Lisa Fu, 

Fund Fire (Mar. 18, 2020) available at https://

www.fundfire.com/c/2686753/328173/managers_

wield_proxy_votes_target_corporate_governance. 

Staff has observed that funds that invest in other 

parts of the capital structure, for instance through 

holding debt or investing in asset-backed securities, 

also engage on ESG issues; discussion herein of 

fund engagement with issuers also includes fund 

engagement as a debt holder, asset-backed security 

investor, or similar stakeholder due to investment 

in an issuer. 

87See Disclosure of Proxy Voting Policies and 

Proxy Voting Records by Registered Management 

Investment Companies, Investment Company Act 

Release No. 25922 (Jan. 31, 2003) [68 FR 6563 (Feb. 

7, 2003)] (‘‘N–PX Adopting Release’’), available at 

https://www.sec.gov/rules/final/33-8188.htm 

(recognizing that while the fund’s board of 

directors, acting on the fund’s behalf, has the right 

and the obligation to vote proxies relating to the 

fund’s portfolio securities, this function is typically 

delegated to the fund’s investment adviser); see also 

Proxy Voting: Proxy Voting Responsibilities of 

Investment Advisers and Availability of 

Exemptions from Proxy Rules for Proxy Advisory 

Firms, Staff Legal Bulletin No. 20 (IM/CF) (June 30, 

2014), available at https://www.sec.gov/investment/ 

slb20-proxy-voting-responsibilities-investmentadvisers at text accompanying n.4. 

88See also Enhanced Reporting of Proxy Votes by 

Management Investment Companies; Reporting of 

Executive Compensation Votes by Institutional 

Investment Managers, Investment Company Act 

Rel. No. 34389 (Sept. 29, 2021) [86 FR 57478 (Oct, 

15, 2021)]; see also Commission Guidance 

Regarding Proxy Voting Responsibilities of 

Investment Advisers, Investment Company Act Rel. 

No. 33605 (Aug. 21, 2019) [84 FR 47416 (Sept. 10, 

2019)]. 

89Proposed Item 4(a)(2)(ii)(B), Instructions 4 and 

8 of Form N–1A [17 CFR 274.11A]; Proposed Item 

8.e.(2)(B), Instructions 4 and 8 of Form N–2 [17 CFR 

274.11a–1]. See also Section II.A.1.b. 

90Proposed Item 4(a)(2)(ii)(B), Instruction 8 of 

Form N–1A [17 CFR 274.11A]; Proposed Item 

8.e.(2)(B), Instruction 8 of Form N–2 [17 CFR 

274.11a–1]. 

disclose in its investment objective the 

ESG impact that the fund seeks to 

generate with its investments.84 Openend funds disclose their investment 

objectives at the beginning of the 

prospectus. Because closed-end funds 

are not required to disclose their 

investment objectives until later in the 

prospectus, the proposed instruction for 

closed-end funds would require an 

Impact Fund to disclose the ESG impact 

that the fund seeks to generate with its 

investments where the fund first 

describes its objective in the filing.85 For 

both open- and closed-end funds, this 

requirement is designed to highlight for 

investors any ESG-related impact an 

Impact Fund is seeking to achieve, given 

that such specific or measurable impacts 

differentiate Impact Funds from other 

ESG-Focused Funds. We request 

comment on all aspects of our proposal 

with respect to disclosure by Impact 

Funds in the prospectus, including the 

following items: 

52. Are Impact Funds appropriately 

considered a subset of ESG-Focused 

Funds, or are they sufficiently distinct 

that they need a separate set of 

disclosure requirements in the 

prospectus beyond the specific 

proposed instruction for Impact Funds? 

Should we require additional 

disclosures for Impact Funds beyond 

what we have proposed? Is there any 

disclosure about an Impact Fund we 

have proposed that the Commission 

should not adopt? 

53. Should we, as proposed, require 

an Impact Fund disclose the 

relationship between the impact the 

Fund is seeking to achieve and financial 

return(s)? Should we require this 

disclosure of all ESG-Focused Funds? 

54. Should we, as proposed, require 

an Impact Fund to disclose how it is 

seeking to achieve its impact, including 

how it measures progress towards 

impact? Should we instead define an 

Impact Fund as an ESG-Focused Fund 

that seeks to achieve ‘‘measurable’’ ESG 

impact or impacts rather than define an 

ESG-Focused Fund as a fund that seeks 

to achieve a specific impact, as 

proposed? 

55. Should we require, as proposed, 

an Impact Fund to describe the fund’s 

time horizon for progressing on its 

impact objectives and any key 

performance indicators that the fund 

uses to analyze or measure the 

effectiveness of the its engagement? 

56. Should we, as proposed, require 

the statement that the fund reports 

annually on its progress in achieving its 

impact in the fund’s annual report to 

shareholders or annual report on Form 

10–K as applicable? Would that 

statement be helpful to an investor to be 

aware of an obligation by the fund to 

report progress, which the investor may 

want to review in making an initial 

investment decision? 

57. Should we, as proposed, require 

an Impact Fund to disclose the ESG 

impact it is seeking to generate in the 

fund’s investment objective section of 

the prospectus? Should we, as 

proposed, require a closed-end fund to 

provide this disclosure where the 

Impact Fund first describes its objective 

in the filing? 

(3) Proxy Voting or Engagement With 

Companies 

A common way for advisers to funds 

to advance ESG goals is through using 

their power as an investor.86 In most 

cases, a fund’s adviser votes the proxies 

of the fund’s portfolio companies voting 

securities on the fund’s behalf. 87 In 

these cases, a fund adviser’s 

stewardship can include strategies for 

how the fund will vote proxies on ESGrelated voting matters that arise. 

Further, advisers may engage with the 

management of issuers through 

meetings or statements of policy. As a 

result, funds have significant power that 

can be used to influence the actions of 

portfolio companies, whether through 

formal actions such as proxy voting or 

through other forms of engagement such 

as meetings with management or 

statements of policy. Investors have an 

interest in how funds in which they 

invest exercise their influence with 

regard to ESG issues.88 We are 

proposing additional disclosure on 

these topics to help investors in ESGFocused Funds understand how the 

fund’s adviser engages with portfolio 

companies on ESG issues. 

Specifically, we are proposing that 

funds for which engagement with 

issuers, either by voting proxies or 

otherwise, is a significant means of 

implementing their ESG strategy check 

the appropriate box in the first row of 

the ESG Strategy Overview Table.89 A 

fund that checks either the proxy voting 

or engagement box in the first row of the 

ESG Strategy Overview Table indicating 

that proxy voting or engagement with 

issuers is a significant means of 

implementing its ESG strategy would be 

required to provide a brief narrative 

overview in the last row of the ESG 

Strategy Overview table of how the fund 

engages with portfolio companies on 

ESG issues. This could include, for 

example, an overview of the fund’s 

voting of proxies and meetings with 

management.90 As discussed further 

below, a fund that does not check the 

box in the first row would still be 

required to include this item in the ESG 

Strategy Overview Table and would 

disclose that neither proxy voting nor 

engagement with issuers is a significant 

part of its investment strategy. 

Unlike other common strategies for 

which we are proposing check boxes in 

the first row of the ESG Strategy 

Overview Table, where a fund would 

check the box as a result of any use of 

the strategy described by the check box, 

we are proposing that a fund would 

only check the boxes regarding proxy 

voting or engagement with issuers if 

either such strategy is a ‘‘significant’’ 

means of implementing the fund’s ESG 


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91For example, a fund checking this box might 

pursue a strategy of purchasing securities of an 

issuer that is performing poorly on ESG metrics, 

such as a company that has historically focused on 

fossil fuel production that the fund believes does 

not have a strategy to allocate capital to other 

sectors of the energy market, and run a proxy 

campaign to elect board members who it believes 

would promote a shift in its capital allocation 

strategy. 

92Proposed Item 4(a)(2)(ii)(B), Instruction 4 of 

Form N–1A [17 CFR 274.11A]; Proposed Item 

8.e.(2)(B), Instruction 4 of Form N–2 [17 CFR 

274.11a–1]. 

93Funds have long discussed their practice of 

‘‘behind the scenes’’ engagement. See, e.g., N–PX 

Adopting Release, supra footnote 87, at Section II.B. 

The lack of consistent disclosure regarding this 

practice has been highlighted by advisory groups. 

See, e.g., text accompanying note 27. 

94Proposed Instruction 2(f) to Item 9(b)(2) of 

Form N–1A [17 CFR 274.11A]; proposed Instruction 

9.b.(6) to Item 8.e.(2)(B) of Form N–2 [17 CFR 

274.11a–1]. 

strategy.91 Funds that invest in voting 

securities generally vote proxies they 

receive as a result, and without 

clarification, a fund may incorrectly 

believe that simply voting on ESG proxy 

matters could be sufficient for the fund 

to check the associated box in the ESG 

strategy overview row. Likewise, funds 

may hold meetings with certain issuers 

on an infrequent or ad hoc basis rather 

than as a significant part of their 

strategy, and may incorrectly believe 

that such infrequent or ad hoc 

engagement would be sufficient for 

them to claim that engagement is a part 

of their strategy. We believe that the 

proposed additional requirement for the 

fund to make proxy voting or other 

engagement a ‘‘significant’’ portion of its 

strategy in order to check the associated 

box results in the strategy being 

appropriately limited to funds that 

proactively use proxy voting or 

engagement with issuers as a means of 

implementing of their ESG strategy. 

While a fund’s determination of 

whether either strategy is significant 

would depend on the facts and 

circumstances, we generally believe a 

fund that regularly and proactively 

votes proxies or engages with issuers on 

ESG issues to advance one or more 

particular ESG goals the fund has 

identified in advance would be using 

voting and engagement as a significant 

means to implement its strategy.92

We are proposing that this overview 

identify the specific methods, both 

formal and informal, that funds use to 

influence issuers. First, we are 

proposing that a fund would be required 

to identify whether the fund has specific 

or supplemental proxy voting policies 

and procedures that include one or 

more ESG considerations for companies 

in its investment portfolio and, if so, 

state which ESG considerations those 

policies and procedures address. We 

believe that investors will find it useful 

to be able to understand whether any 

such policies exist in order to help them 

understand and evaluate the fund’s 

claims about its voting practices on ESG 

voting matters. 

Additionally, if an ESG-Focused Fund 

seeks to engage with issuers on ESG 

matters other than through voting 

proxies, such as through meetings with 

or advocacy to management, the fund 

would be required to disclose in this 

row an overview of the objectives it 

seeks to achieve with its engagement 

strategy. We believe investors are 

interested in understanding a fund’s 

engagement on ESG issues through 

means other than voting proxies when 

considering ESG investments.93 Finally, 

if the fund does not engage or expect to 

engage with issuers on ESG issues, the 

Fund must provide that disclosure in 

the row. As is the case for funds’ voting 

policies, we believe it is important for 

investors to understand if an ESGFocused Fund does not engage or expect 

to engage with issuers on ESG issues 

because investors may expect that an 

ESG-Focused Fund that holds voting 

securities generally would engage with 

issuers on topics within the fund’s ESG 

goals. 

A fund that does not check the proxy 

voting box or the engagement box in the 

first row would still be required to 

include this row in the ESG Strategy 

Overview Table and would disclose that 

neither proxy voting nor engagement 

with issuers is a significant means of 

implementing its investment strategy. 

Even though in many cases a fund may 

not use proxy voting or engagement as 

a significant means of implementing its 

ESG engagement strategy, the fund may 

still vote proxies if it holds voting 

securities, or it may engage with issuers 

on a limited basis, and investors may 

wish to understand how it votes or 

engages on ESG issues. In addition, we 

believe it is important for investors to 

understand if the fund does not vote 

proxies or engage on ESG issues, as 

investors in an ESG-Focused Fund 

might otherwise be misled because they 

reasonably expected the fund to engage 

in these practices. For example, we 

believe that investors should 

understand when an ESG-Focused Fund 

holds voting securities but does not use 

proxy voting or other engagement as a 

means of implementing their ESG 

strategy, as this may be contrary to the 

investor’s expectations. For funds that 

invest only in non-voting securities, we 

believe it would be helpful to state this 

fact for investors. 

As with other ESG disclosures, we are 

proposing a layered disclosure approach 

for this information. The concise 

disclosure provided by the fund would 

be in the ESG Strategy Overview table 

and would be complemented by 

additional information in an open-end 

fund’s statutory prospectus and later in 

a closed-end fund’s prospectus, which 

would provide investors with complete 

information to evaluate a fund’s 

engagement while not overwhelming 

investors with information at the front 

of the prospectus. Specifically, a fund 

that engages or expects to engage with 

companies in its portfolio on ESG 

would be required to disclose specific 

information on the objectives it seeks to 

achieve with its engagement strategy, 

including the Fund’s time horizon for 

progressing on such objectives and any 

key performance indicators that the 

Fund uses to analyze or measure of the 

effectiveness of such engagement.94

Collectively, these disclosures are 

designed to help an investor monitor 

how the fund engages on ESG issues, for 

example by implementing the ESG 

strategies it advertises to investors, and 

to understand the role of voting and 

engagement activity with respect to the 

fund’s ESG focus and strategy. 

We request comment on all aspects of 

our proposal with respect to engagement 

disclosure for ESG-Focused Funds, 

including the following items: 

58. Should we, as proposed, provide 

separate check boxes for proxy voting 

and engagement? Should we, as 

proposed, include both proxy voting 

and engagement in the row ‘‘How the 

Fund votes proxies and/or engages with 

companies about [ESG] issues?’’ How 

commonly do funds voting proxies as a 

significant means of implementing their 

ESG strategy also use engagement as a 

significant means of implementing their 

ESG strategy, or vice versa? Do funds 

engage with issuers in ways other than 

through voting proxies and meeting 

with management that we should 

address in the disclosure rules? What 

are those other ways? Should we require 

disclosure about those other ways of 

engaging with issuers? What would that 

disclosure include? 

59. As proposed, any fund for which 

proxy voting or engagement with issuers 

is a significant means of implementing 

the Fund’s ESG strategy would indicate 

it pursues the applicable strategy by 

checking the box for proxy voting or 

engagement (or both, as applicable). 

Should this be the case, even for a fund 

that uses investment selection as the 

primary method for achieving its ESG 

goal? Is the proposed requirement that 

proxy voting or engagement with issuers 

be a ‘‘significant’’ means of 


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Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36671 

95According to public filings with the 

Commission, as of Oct. 26, 2021, there were 35 UITs 

registered on Form S–6 that incorporated an ESG 

strategy. 

96See Proposed Instruction 2 to Item 11 of Form 

N–8B–2 under the Investment Company Act [17 

CFR 274.12]. A UIT registers the trust on Form N– 

8B–2 under the Investment Company Act [17 CFR 

274.12] and each series of the trust on Form S–6 

under the Securities Act of 1933 [17 CFR 239.16]. 

Form S–6 generally requires the registrant to 

provide in its prospectus the information required 

by the disclosure items in Form N–8B–2. See 

Instruction 1. Information to be Contained in 

Prospectus of Form S–6 [17 CFR 239.16]. 

97See 15 U.S.C. 80a–4(2) (defining a UIT, in part, 

to mean an investment company organized under 

a trust indenture or similar instrument that issues 

redeemable securities, each of which represents an 

undivided interest in a unit of specified securities). 

98Fund of Fund Arrangements, Investment 

Company Act Release No. 33329 (Dec. 19, 2018) [84 

FR 1286 (Feb. 1, 2019)] at n. 169 (‘‘Fund of Funds 

proposing release’’). The proposed amendment does 

not require insurance company separate accounts 

organized as UITs to provide additional ESG 

disclosure because investors in those UITs allocate 

their investments to subaccounts invested in 

mutual funds that, in turn, would provide any 

required disclosure under the proposal about their 

ESG investing. Further, the proposed amendment 

does not have additional disclosure requirements 

for UITs operating as ETFs because, as of Dec. 1, 

2021, there were only five UITs that operated as 

ETFs and those ETFs do not pursue ESG strategies, 

and because funds have not sought to create new 

ETF UITs for 19 years. 

implementing the fund’s ESG strategy 

clear? Should we provide additional 

guidance on what constitutes a 

‘‘significant’’ means of implementing a 

fund’s ESG strategy? Should we provide 

that a fund’s proxy voting would only 

be a ‘‘significant’’ means of 

implementing the fund’s ESG strategy if 

the fund engages in activity beyond 

simply exercising its right to vote, for 

example by developing or proposing 

initiatives directly? Should we provide 

for additional requirements in order for 

a fund to check the applicable box 

indicating that it uses proxy voting or 

engagement with issuers to implement 

its ESG strategy? 

60. Should we, as proposed, require 

an ESG-Focused Fund that does not 

expect to vote proxies or engage with 

issuers to provide such disclosure in the 

ESG Strategy Overview table? If a fund 

does not expect to vote proxies or 

engage with its issuers, should it be 

required to affirmatively state this fact, 

as proposed, or would it instead be 

appropriate to require a different 

disclosure, such as a statement that the 

row is ‘‘not applicable?’’ Would such 

disclosure help an investor understand 

how a fund does or does not engage 

with issuers to implement its ESG 

strategy? Are there circumstances in 

which an ESG-Focused Fund’s 

disclosure of its proxy voting or 

engagement practices could result in the 

fund making decisions that are not in 

the fund’s best interest? Should we 

provide an exception from this 

disclosure for ESG-Focused Funds that 

do not expect to invest in voting 

securities, or would describing such 

strategy provide investors with helpful 

information? Should we require an ESGFocused Fund that does not expect to 

invest in voting securities to 

affirmatively disclose this fact to 

investors in the ESG Strategy Overview 

table? Are there other ways in which 

funds that invest in non-voting 

securities engage with issuers and, if so, 

should we modify the proposed 

requirement to explicitly refer to such 

practices as being relevant disclosure for 

purposes of this item? 

61. Is there additional information 

that should be disclosed in the statutory 

prospectus about the ESG-Focused 

Fund’s specific or supplemental proxy 

voting policies regarding how it votes 

on ESG issues? For example, should we 

require a fund to provide a narrative 

description of its specific or 

supplemental proxy voting policies 

regarding how it votes on ESG issues? 

Can those policies be described briefly 

in a way that is understandable to 

investors? What other disclosure would 

help an investor understand how the 

fund votes proxies on ESG issues? 

2. Unit Investment Trusts 

In addition to management 

investment companies, some UITs 

provide exposures to portfolios selected 

based on ESG factors.95 Accordingly, we 

are proposing to require these UITs to 

provide investors with clear information 

about how portfolios are selected based 

on ESG factors. The proposed 

amendment would require any UIT with 

portfolio securities selected based on 

one or more ESG factors to explain how 

those factors were used to select the 

portfolio securities.96

A UIT, by statute, is an unmanaged 

investment company that invests the 

money that it raises from investors in a 

generally fixed portfolio of stocks, 

bonds, or other securities.97 Investors 

can review that portfolio before 

investing and, therefore, know the 

portfolio in which they will be investing 

for the duration of their UIT investment. 

Unlike a management company, a UIT 

does not trade its investment portfolio, 

and does not have a board of directors, 

officers, or an investment adviser to 

render advice during the life of the UIT. 

In addition, UITs that do not serve as 

variable insurance contract separate 

account vehicles or that are not ETFs 

typically have a limited term of 12 to 18 

months.98

We designed our proposed 

amendment to provide UIT investors 

with the ability to understand the role 

ESG factors played in the portfolio 

selection process. In contrast to the 

amendments that we are proposing for 

other types of funds, the level of detail 

required by the proposed amendment 

reflects the unmanaged nature of UITs. 

In particular, we are not proposing to 

differentiate disclosure based on 

whether a UIT’s selection process was 

an integration model or an ‘‘ESGfocused’’ model as the portfolio is fixed, 

and such model will not be used for 

continued investment selection after the 

UIT shares are sold. UIT trustees 

generally engage in ‘‘mirror voting’’ of 

shares, that is, vote the UITs’ shares in 

a portfolio company in the same 

proportion as the vote of all other 

holders of the portfolio company’s 

shares. Accordingly, we are not 

requiring disclosure of engagement with 

portfolio companies. 

We request comment on all aspects of 

our proposed ESG disclosure for UITs, 

including the following items: 

62. Should the ESG disclosure 

requirement apply to UITs, as proposed? 

Should the substantive disclosure 

requirement for UITs differ from that of 

other types of funds, as proposed? 

63. A UIT invests the money that it 

raises from investors in a generally fixed 

portfolio of stocks, bonds, or other 

securities. However, the focus of certain 

investments of the UIT’s fixed portfolio 

might ‘‘drift’’ away from the ESG factors 

that formed the basis for those 

investments’ inclusion in the portfolio 

during the UIT’s limited term. Should 

the amendments address such 

situations? 

64. Are there elements of the 

proposed disclosure requirements for 

other types of funds that we should 

require of UITs? For example, should 

we differentiate disclosure requirements 

for UITs whose depositors integrate ESG 

factors and those whose depositors used 

ESG factors as a more significant or 

main consideration for portfolio 

selection? Are there currently any UITs 

for which the depositor selected the 

securities for the UITs portfolio with the 

goal of achieving one or more specific 

ESG impact and, if so, should we 

differentiate disclosure requirements for 

such UITs? 

65. Should the Commission require 

ESG disclosure for all types of UITs, 

including insurance company separate 

accounts organized as UITs and UITs 

operating as ETFs? 

66. Should the ESG disclosure 

requirement for UITs address proxy 

voting? Are there circumstances where 

the trustee would not ‘‘mirror’’ vote? If 

so, what are those circumstances? 


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99 In Aug. 2020, the Commission proposed a 

layered approach to the shareholder report 

disclosure framework that would streamline the 

shareholder report delivered to shareholders, with 

additional information available online upon 

request. As part of this proposal, the Commission 

proposed targeted amendments to the MDFP 

requirements to make the disclosure more concise, 

but generally did not propose amendments to the 

current content requirements of the MDFP. See 

Tailored Shareholder Reports, Treatment of Annual 

Prospectus Updates for Existing Investors, and 

Improved Fee and Risk Disclosure for Mutual 

Funds and Exchange-Traded Funds; Fee 

Information in Investment Company 

Advertisements, Investment Company Act Release 

No. 33963 (Aug. 5, 2020) [85 FR 70716 (Nov. 5, 

2020)] (‘‘Streamlined Shareholder Report 

Proposal’’). 

100Proposed Instruction 10 to Item 24 of Form N– 

2 [17 CFR 274.11a–1]. BDC annual reports do not 

include MDFP. 

101Proposed Item 27(b)(7)(i)(B) of Form N–1A; 

Proposed Instruction 4.(g)(1)(B) to Item 24 of Form 

N–2 [17 CFR 274.11a–1]. 102Proposed Item 27(b)(7)(i)(C) of Form N–1A; 

Proposed Instruction 4.(g)(1)(C) to Item 24 of Form 

N–2 [17 CFR 274.11a–1]. 

103Proposed Item 27(b)(7)(i)(E) of Form N–1A; 

Proposed Instruction 4.(g)(1)(D) to Item 24 of Form 

N–2 [17 CFR 274.11a–1]. 

104Proposed Item 27(b)(7)(i)(E) of Form N–1A; 

Proposed Instruction 4.(g)(1)(E) to Item 24 of Form 

N–2 [17 CFR 274.11a–1]. 

105For this reason, for purposes of this Section 

II.A.3 of this release, the term ‘‘fund’’ does not 

include UITs. 

67. Should the ESG disclosure 

requirements for UITs address ESG 

engagement? Are there circumstances 

where the depositor, trustee, or 

principal underwriter engages with 

issuers regarding ESG issues? If so, what 

are those circumstances, given the 

unmanaged nature of UITs? 

3. Fund Annual Report ESG Disclosure 

In addition to the proposed 

amendments to fund prospectuses, we 

are proposing several amendments to 

fund annual reports to provide 

additional ESG-related information. For 

registered management investment 

companies, the proposed disclosure 

would be included in the management’s 

discussion of fund performance 

(‘‘MDFP’’) section of the fund’s annual 

shareholder report. Currently, the MDFP 

provides, among other things, a 

narrative discussion of the factors that 

materially impacted the fund’s 

performance during the most recently 

completed fiscal year, a line graph 

providing the account values for each of 

the most recently completed 10 fiscal 

years based on an initial $10,000 

investment in the fund compared to the 

returns of an appropriate broad based 

index for the same period, and a table 

showing the fund’s average annual total 

returns for the past 1-, 5-, and 10-year 

periods.99 Although funds have 

flexibility in deciding what information 

they include in the MDFP, funds are 

required to disclose factors that 

materially impacted the fund’s financial 

performance and operations. For BDCs, 

the proposed disclosure would be 

included in the management discussion 

and analysis, or ‘‘MD&A,’’ in the fund’s 

annual report on Form 10–K.100 That 

section of the annual report is similar to 

a fund’s MDFP in that it requires a 

narrative discussion of the financial 

statements of the company and an 

opportunity to look at a company 

‘‘through the eyes of management.’’ 

Specifically, we are proposing to 

require Impact Funds to discuss the 

fund’s progress on achieving its impact 

in both qualitative and quantitative 

terms during the reporting period.101

The Impact Fund would also be 

required to discuss the key factors that 

materially affected the fund’s ability to 

achieve its impact. Additionally, funds 

for which proxy voting is a significant 

means of implementing their ESG 

strategy would be required to disclose 

certain information regarding how the 

fund voted proxies relating to portfolio 

securities on ESG issues during the 

reporting period.102 Funds for which 

engagement with issuers on ESG issues 

through means other than proxy voting 

is a significant means of implementing 

their ESG strategy would also be 

required to disclose certain information 

about their engagement practices.103

Finally, the proposal would require an 

ESG-Focused Fund that considers 

environmental factors to disclose the 

aggregated GHG emissions of the 

portfolio.104 We discuss each of these 

proposed amendments below. 

68. Should we require funds to 

provide the impact, engagement, and 

GHG emissions disclosure in their 

annual reports in the MDFP or MD&A 

as applicable, as proposed? Should we 

instead require these disclosures to be 

in another regulatory document such as 

the fund’s prospectus, or Forms N–CEN, 

N–CSR, or N–PORT? Should we require 

the disclosure to be on the fund’s 

website? Are there any modifications or 

enhancements to all the proposed 

disclosures in annual reports and Forms 

N–CEN, N–CSR, or N–PORT that we 

should adopt? If the changes to the 

shareholder report discussed above that 

the Commission proposed in August 

2020 are adopted substantially as 

proposed, should we require this 

disclosure to be included in one of the 

new sections that the Commission 

proposed to be added to the report, such 

as the fund statistics section? Should we 

require funds to make some or all these 

disclosures more frequently than 

annually? For example, should 

registered investment companies 

provide the disclosure in both their 

annual and semi-annual reports to 

shareholders? Would more frequent 

disclosure, such as quarterly disclosure, 

be appropriate? Could more frequent 

reporting, for example, help mitigate the 

potential for window dressing, i.e., 

buying or selling portfolio securities 

shortly before the date as of which a 

fund’s investments are reported? 

69. We are not proposing to extend 

these requirements to UITs.105 Because 

they are unmanaged, we are not aware 

of any UITs that engage in impact 

investing, or vote proxies or engage with 

issuers as a significant means of 

implementing an ESG strategy. Should 

we require UITs to provide certain or all 

of the information we are proposing to 

require to be included in funds’ annual 

reports? For example, should we require 

UITs to provide additional information 

regarding their ESG impacts, results of 

their proxy voting, results of their ESG 

engagement, or GHG emissions? How, or 

to what extent, should any such 

disclosure requirements differ for UITs, 

which are not managed, and in the case 

of UITs that would be covered by this 

proposal, typically have a limited term, 

sometimes of 12–18 months? Where 

should UITs provide the disclosure? For 

example, should a UIT provide some or 

all of this disclosure on Form N–CEN? 

70. Should we, as proposed, require 

BDCs to provide certain or all of the 

information we are proposing to require 

registered management investment 

companies to include in MDFP? Is the 

proposed instruction in Form N–2 that 

a BDC should provide this disclosure in 

Item 7 of its annual report filed under 

the Exchange Act sufficiently clear? Are 

there instructions on Form N–2 or Form 

10–K that we should add? 

(a) ESG Impact Fund Disclosure 

As discussed above, Impact Funds are 

seeking to achieve specific ESG impacts 

with their investments. Therefore, how 

the fund performed with respect to the 

fund’s ESG impact is relevant to 

investors, in addition to the currently 

required information about the fund’s 

financial performance. Some Impact 

Funds voluntarily disclose information 

regarding their progress towards 

achieving their impact in fund fact 

sheets, shareholder reports, or impact 

reports. However, information provided 

to investors of Impact Funds varies 

across funds. Additionally, voluntary 

disclosures without minimum 

requirements can create the potential for 

funds to exaggerate their ESG-related 

accomplishments. 


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106Proposed Item 27(b)(7)(i)(B) of Form N–1A; 

Proposed Instruction 4.(g)(1)(B) to Item 24 of Form 

N–2 [17 CFR 274.11a–1]. This requirement would 

apply to any fund that meets the definition of 

Impact Fund included in Item 4(a)(2)(i)(C) of Form 

N–1A and Item 8.2.e.(1)(C) of Form N–2. See supra 

Section II.A.1.b.(2). 

107See Streamlined Shareholder Report Proposal, 

supra footnote 99. 

108Proposed Item 27(b)(7)(i)(C) of Form N–1A; 

Proposed Instruction 4.(g)(1)(C) to Item 24 of Form 

N–2 [17 CFR 274.11a–1]. This requirement would 

apply to any fund that checks the proxy voting box 

included in the proposed amendments to Item 4 of 

Form N–1A and Item 8 of Form N–2. See supra 

Section II.A.1.b.(3). 109Take, for example, a fund focused on 

deforestation. During the reporting period, the fund 

Continued 

Accordingly, we believe that creating 

a common disclosure requirement in 

annual reports specifically tailored to 

the ESG strategies of Impact Funds 

would provide investors who seek to 

engage in impact investing with 

information to help these investors to 

make more informed investment 

decisions and receive information to 

assist them in analyzing how effectively 

funds in which they invest are 

achieving their ESG impacts. 

Specifically, we are proposing to require 

an Impact Fund to summarize briefly 

the Fund’s progress on achieving its 

specific impact(s) in both qualitative 

and quantitative terms during the 

reporting period, and the key factors 

that materially affected the Fund’s 

ability to achieve the specific impact(s), 

on an annual basis in the annual 

report.106 For example, a community 

development fund that seeks to enhance 

services in underserved communities by 

investing in the construction of 

community facilities may disclose that, 

during the reporting period, the 

companies in which the fund invests 

constructed a specific number of 

recreational centers in target 

communities. As another example, a 

fund that seeks to conserve natural 

resources by investing in the 

construction of certified ‘‘green’’ 

buildings might report the number of 

‘‘green’’ buildings built by the fund’s 

portfolio companies over the reporting 

period along with a qualitative 

discussion of how green buildings are 

defined and how they contribute to 

conservation of natural resources. 

This type of information would allow 

investors who are seeking, based on the 

examples above, to enhance services in 

underserved communities or conserve 

natural resources with their investments 

to evaluate, in both qualitative and 

quantitative terms, how their 

investment is achieving their ESG goals 

in a given year and over time. It would 

also protect investors from exaggerated 

claims about ESG impacts by requiring 

Impact Funds to substantiate such 

claims on an annual basis by disclosing 

their progress. Additionally, to the 

extent different Impact Funds use the 

same or similar key performance 

indicators to measure their progress in 

achieving a specific impact, this 

requirement would allow investors to 

compare different Impact Funds with 

similarly stated ESG impacts. 

We request comment on all aspects of 

our proposed amendments to require an 

Impact Fund to report progress on 

achieving its specific impact on an 

annual basis in the annual report, 

including the following items. 

71. Should we, as proposed, require 

Impact Funds to discuss their progress 

on achieving its ESG impact? To what 

extent do affected funds already provide 

this disclosure in their annual reports or 

elsewhere? 

72. Should we, as proposed, require 

the annual report disclosure for Impact 

Funds to be in both qualitative and 

quantitative terms? Are there burdens or 

other issues related to this requirement? 

Would this result in more comparable 

information across funds? Are there 

impacts that commenters do not believe 

can be conveyed effectively in 

quantitative terms? Should we allow, 

but not require, an Impact Fund to 

provide a qualitative discussion and 

quantitative information? Should we 

instead only require Impact Funds to 

provide a qualitative discussion of its 

progress? Alternatively, should we 

require Impact Funds to provide their 

progress only in quantitative terms? 

73. Instead of requiring an Impact 

Fund to disclose its progress towards 

achieving its specific impact in the 

annual report as proposed, should we 

instead require it to be disclosed in 

another regulatory document such as 

the fund’s prospectus, or Forms N–CEN, 

N–CSR, or N–PORT? Should we allow 

the fund to omit the disclosure in its 

annual report or other regulatory 

document if the fund provides the 

information on its website? If so, should 

the regulatory documents provide a link 

to the website? 

74. As discussed above, the 

Commission proposed amendments to 

fund shareholder reports that would 

significantly shorten the shareholder 

reports and change its contents.107 If the 

amendments to shareholder reports in 

that proposal were adopted, should the 

disclosure regarding an Impact Fund’s 

progress on achieving its specific impact 

go in a different section of the 

shareholder report (other than the 

MDFP) as the Commission proposed to 

amend it? For example, under the 

proposed rule, the shareholder report 

would contain a new section entitled 

‘‘fund statistics,’’ where funds would be 

required to disclose certain key fund 

statistics, including the fund’s net 

assets, total number of portfolio 

holdings, and portfolio turnover rate. A 

fund would also be allowed to include 

additional statistics that are reasonably 

related to a fund’s investment strategy. 

To the extent the proposed rule is 

adopted, should we require or allow 

disclosure of an Impact Fund’s progress 

towards achieving its specific impact to 

be included in the fund statistics section 

of the proposed shareholder report? 

75. Are the proposed instructions for 

the disclosure by Impact Funds 

sufficiently clear? Are there portions of 

the instructions that we should clarify? 

Are there alternative instructions that 

would provide investors in Impact 

Funds with meaningful information 

about a fund’s progress towards its 

objectives? For example, if an Impact 

Fund changes the methodology it uses 

to calculate its progress towards 

achieving its specific impact, should the 

instructions require such a fund to 

describe the change in methodology and 

the reasons for the change? 

76. Should we require all ESGFocused Funds and/or Integration 

Funds to provide MDFP or MD&A 

disclosure regarding how effectively 

they implemented their ESG strategies? 

For example, do ESG-Focused Funds 

that primarily use an inclusionary or 

exclusionary screen track any key 

performance indicators to analyze the 

effectiveness of the screen in furthering 

the ESG issues that are relevant to fund? 

Do Integration Funds track any key 

performance indicators? Would this 

disclosure of such key performance 

indicators be helpful to investors? 

Would it lead to potential for investors 

to be misled through overemphasis of 

ESG factors relative to such funds’ 

actual level of consideration of such 

factors? 

(b) ESG Proxy Voting Disclosure 

We are also proposing amendments to 

fund annual reports to require an ESGFocused fund for which proxy voting is 

a significant means of implementing its 

ESG strategy to disclose certain 

information regarding how it voted 

proxies relating to portfolio securities 

on particular ESG-related voting 

matters.108 Specifically, the proposed 

amendments would require the fund to 

disclose, in the MDFP or MD&A section 

of the annual report as applicable, the 

percentage of ESG-related voting matters 

during the reporting period for which 

the Fund voted in furtherance of the 

initiative.109 The fund would be 


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was eligible to vote on 100 voting matters that 

would have limited deforestation. If the fund voted 

in favor of 75 of those matters, then the fund would 

report that it voted in furtherance of limiting 

deforestation 75% of the time during the reporting 

period. 

110The requirement to refer investors to the 

fund’s full voting record filed on Form N–PX would 

not apply to BDCs because they do not file reports 

on Form N–PX. 

111The Commission has proposed amendments to 

Form N–PX that would require filers to select from 

a standardized list of categories to identify the 

subject matter of each of the reported proxy voting 

items, including categories of proxy votes relating 

to numerous ESG matters. See Enhanced Reporting 

of Proxy Votes by Registered Management 

Investment Companies; Reporting of Executive 

Compensation Votes by Institutional Investment 

Managers, Investment Company Act Release No. 

IC–34389 (Sep. 29, 2021) [86 FR 57478 (Oct. 15, 

2021)]. Commenters on that proposal requested that 

the Commission propose additional comprehensive 

disclosure on funds’ ESG engagement, whether by 

proxy voting or other means, to complement the 

disclosure on Form N–PX. See Letter from 

Vanguard Group Center regarding Enhanced 

Reporting of Proxy Votes by Registered 

Management Investment Companies; Reporting of 

Executive Compensation Votes by Institutional 

Investment Managers (File No. S7–11–21), available 

at https://www.sec.gov/comments/s7-11-21/s71121- 

20109559-263921.pdf. 

112See Proposed Item 27(b)(7)(i)(D) of Form N– 

1A; Proposed Instruction 4.(g)(1)(D) to Item 24 of 

Form N–2. 

113See N–PX Adopting Release, supra footnote 

87, at Section II.B (‘‘[C]ommenters argued that 

mandatory disclosure of proxy votes would 

undermine their ability to change corporate 

governance practices of portfolio companies 

through ‘behind the scenes’ private 

communications’’). Public interest groups have 

noted the influence that may be wielded through 

engagement meetings and have suggested that the 

nonpublic nature of such meetings makes it 

difficult for investors to understand whether their 

interests are being served. See Letter from Mercatus 

Center regarding Enhanced Reporting of Proxy 

Votes by Registered Management Investment 

Companies; Reporting of Executive Compensation 

Votes by Institutional Investment Managers (File 

No. S7–11–21), available at https://www.sec.gov/ 

comments/s7-11-21/s71121-9374387-262127.pdf. 

114See also Section I.A.3 (discussing need for a 

disclosure framework that allows investors to 

understand specific information about an ESG 

investment strategy in light of the different 

approaches taken by ESG investors). 

permitted to limit the disclosure to 

voting matters involving ESG factors 

that the fund incorporates into its 

investment decisions. Additionally, a 

fund would be required to refer 

investors to the fund’s full voting record 

filed on Form N–PX by providing a 

cross reference, and for electronic 

versions of the annual report, including 

a hyperlink, to the fund’s most recent 

complete proxy voting record filed on 

Form N–PX.110

We believe that this disclosure 

regarding the percentage of the fund’s 

votes in furtherance of relevant ESG 

initiatives would complement the 

prospectus disclosure we are proposing 

funds to provide regarding how they use 

proxy voting to influence portfolio 

companies, as well as the existing 

granular report funds provide with their 

full proxy voting records on Form N– 

PX.111 The proposed disclosure would 

allow an investor immediately to see the 

extent to which the fund was voting in 

favor of relevant ESG initiatives, while 

directing investors to the more detailed 

disclosure of the fund’s voting record 

filed on Form N–PX for investors 

interested in that more detailed 

information. 

We request comment on all aspects of 

these proposed amendments, including 

the following items. 

77. Should we, as proposed, require 

any fund that indicates that it uses 

proxy voting as a significant means of 

implementing its ESG strategy to 

disclose the percentage of voting matters 

during the reporting period for which 

the fund voted in furtherance of the 

initiative? Should we permit the fund to 

limit this disclosure to voting matters 

involving the ESG factors the fund 

incorporates into its investment 

decisions, as proposed? Would investors 

and other market participants find this 

information helpful? Is there any 

additional information regarding their 

proxy voting that we should require 

funds to provide? 

78. Are there any complexities with 

calculating the aggregate percentage of 

fund votes in furtherance of an ESG 

voting matter? For example, to what 

extent would there be ambiguity as to 

whether a voting matter involves the 

ESG factors the fund incorporates into 

its investment decisions? Are there 

cases in which it may be unclear 

whether or not a shareholder proposal 

that relates to an ESG factor a fund 

incorporates into its investment 

decisions advances the particular ESG 

goal? Could there be situations in which 

a shareholder proposal may be related to 

a particular ESG factor the fund 

incorporates into its investment 

decisions but the fund nonetheless votes 

against the proposal, for instance 

because it believes the proposal would 

not be a constructive way to address the 

particular ESG matter? Would funds 

that wish to provide additional context 

in these or similar situations be able to 

do so effectively and concisely within 

the MDFP or MD&A disclosure? 

79. Should funds be required to 

provide a narrative explanation of how 

they cast their proxy votes on ESG 

matters, either instead of or in addition 

to statistics on ESG matters? If we 

required a narrative, what elements 

should a fund be required to include? 

80. Should we, as proposed, require 

funds to provide cross-references to the 

more detailed disclosure regarding the 

fund’s full proxy voting record on Form 

N–PX? Should we also require funds to 

cross reference their ESG proxy voting 

policies and procedures? 

(c) ESG Engagement Disclosure 

We are proposing amendments to 

fund annual reports that would require 

funds for which engagement with 

issuers through means other than proxy 

voting is a significant means of 

implementing their ESG strategy to 

disclose progress on any key 

performance indicators of such 

engagement.112 The amendments we are 

proposing also require disclosure of the 

number or percentage of issuers with 

whom the fund held ESG engagement 

meetings during the reporting period 

related to one or more ESG issues and 

total number of ESG engagement 

meetings. Funds have previously 

asserted that much of their influence is 

asserted in private communications 

outside of formal shareholder votes.113

We believe that this disclosure would 

allow investors to evaluate critically the 

disclosure of funds whose ESG strategy 

involves engagement other than or in 

addition to proxy voting in order to 

reduce the potential for exaggerated 

claims of engagement, as well as to 

allow investors to understand better 

whether these funds are accomplishing 

their objectives.114

We are proposing to define ‘‘ESG 

engagement meeting’’ for this purpose to 

mean a substantive discussion with 

management of an issuer advocating for 

one or more specific ESG goals to be 

accomplished over a given time period, 

where progress that is made toward 

meeting such goal is measurable, that is 

part of an ongoing dialogue with 

management regarding this goal. This 

definition is intended to identify 

substantive interactions on ESG issues 

and distinguish an ‘‘ESG engagement 

meeting’’ for this purpose from other 

meetings or interactions for which 

advocacy on ESG issues is not a focus, 

or from aspects of a fund’s ESG 

engagement strategy that are not 

directed to a particular company, such 

as letters to all issuers in a fund’s 

portfolio or policy statements describing 

a fund’s ESG priorities. For example, if 

a fund adviser met with management of 

an issuer in the fossil fuel industry to 

urge the issuer to divest carbonintensive assets by the year 2030 due to 

their impact on the environment, with 

a list of measurable interim steps that 

could be made in each period and a 

follow-up meeting scheduled with 

management in six months to discuss 

progress toward that goal, the each such 

meeting would be an ESG engagement 


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115 In many cases, we recognize that fund advisers 

meet with management of issuers on behalf of 

several funds they advise. When an adviser meets 

with management of an issuer on behalf of multiple 

funds, each fund for which the meeting is within 

its ESG strategy would count the engagement 

meeting in its annual report. See proposed Item 

27(b)(7)(i)(D) of Form N–1A; proposed Instruction 

4.(g)(1)(D) to Item 24 of Form N–2. 

116See 17 CFR 270.38a–1 under the Investment 

Company Act and Investment Company Act Section 

34(b) [15 U.S.C. 80a–33(b)]. 

117After issuing the press release, the fund 

adviser may follow up with a particular issuer to 

discuss the specific ways in which the policy 

announced in the press release would impact the 

issuer’s business and identify specific goals the 

fund expected the issuer to achieve. Such a meeting 

would generally constitute an ESG engagement 

meeting because, unlike a press release or open 

letter, the fund and the issuer actually discussed 

how it should be applied to the issuer. 

meeting under the proposed 

definition.115

We recognize that funds may be 

incentivized to report a higher number 

or percentage of engagements, and this 

may result in funds construing the term 

‘‘ESG engagement meeting’’ differently. 

For example, certain funds could 

perceive pressure to report a high 

number or percentage of engagements 

and thus adopt a more expansive 

understanding of what constitutes an 

engagement than an investor would 

expect. In order to support compliance 

with the Federal securities laws, funds 

should generally consider including in 

their compliance policies and 

procedures a requirement that 

employees memorialize the discussion 

of ESG issues, for example by creating 

and preserving meeting agendas and 

contemporaneous notes of engagements 

relating to ESG issues to assure accurate 

reporting on the number of 

engagements, as we propose to define 

it.116

On the other hand, a ‘‘meet and greet’’ 

between a fund’s adviser and the 

management of an issuer in the fossil 

fuel industry where the topic is 

mentioned, but only at a high level 

would be unlikely to meet the 

definition, even if the adviser and the 

issuer’s management do discuss 

transitioning away from fossil fuels. 

Likewise, a fund adviser that issues a 

press release announcing a policy that 

issuers in its portfolio will be expected 

to divest from their carbon-intensive 

assets by 2030 due to their impact on 

the environment could not treat this 

press release as an ESG engagement 

meeting because it is not tailored to the 

operations of a particular company and 

does not actually interact or engage with 

anyone at the company, but instead is 

part of a dialogue with the public, rather 

than the issuer.117

We recognize that, unlike the 

proposed disclosure requirements 

relating to a fund’s proxy voting, the 

level of subjectivity involved in 

determining whether a discussion meets 

the definition of an ESG engagement 

meeting could diminish the 

comparability across funds of the 

statistics reported pursuant to this 

instruction. While this metric is only 

one of several means by which investors 

could compare ESG-Focused Funds, we 

believe that it is important to provide 

this information for investors to allow 

them to evaluate the efficacy of their 

fund’s engagement activities and to 

provide some basis for comparison 

among funds. Though there may be 

some ambiguities in the inputs for the 

calculation, we believe that in many 

cases this would be straightforward for 

funds to calculate and useful for 

investors as they consider investments. 

We believe it would provide investors 

with enhanced means to monitor 

whether the results of ESG engagement 

strategy comport with investor 

expectations and the fund’s prospectus 

disclosure, as opposed to solely relying 

on qualitative statements, as well as to 

compare ESG-Focused Funds. 

Moreover, we recognize that forms of 

engagement other than ESG engagement 

meeting as we propose to define the 

term may be a valuable part of a fund’s 

engagement strategy, and the proposal 

would not preclude a fund from also 

discussing these other efforts in the 

fund’s MDFP or MD&A as applicable. 

We request comment on all aspects of 

these proposed amendments, including 

the following items. 

81. Should we, as proposed, require 

disclosure of the number or percentage 

of issuers with which the fund engaged 

and total number of ESG engagement 

meetings, as we propose to define that 

term? Would this information be useful 

to investors? Instead of, or in addition 

to, ESG engagement meetings, are there 

other metrics that we could require to be 

disclosed in relation to a fund’s 

engagement strategy? Should we require 

funds to provide additional context to 

this information beyond the number or 

percentage of issuers with which the 

fund engaged and number of 

engagement meetings? 

82. What incentives for funds, issuers, 

or others would exist as a result of the 

proposed requirement that funds report 

the number of ESG engagement 

meetings they have? For example, will 

management of certain issuers be more 

or less likely to engage with a fund if 

they believe it would be reported? Will 

funds be more or less likely to engage 

on certain types of issues? For example, 

will funds only engage with 

management of issuers on ESG issues 

where the fund believes that 

management already agrees with it? 

Would disclosure of engagement result 

in funds or issuers being influenced by 

other parties who become aware of the 

engagement, including parties that are 

not investors in the fund or the 

applicable issuer, and, if so, should we 

take any steps as a result of this 

influence? 

83. Is our proposed definition of ‘‘ESG 

engagement meeting’’ sufficiently clear? 

Is it appropriate that in order for a 

discussion to constitute an ESG 

engagement meeting, the meeting must 

be a substantive discussion with 

management of an issuer advocating for 

one or more specific ESG goals to be 

accomplished over a given time period, 

where progress that is made toward 

meeting such goal is measurable, that is 

part of an ongoing dialogue with the 

issuer regarding this goal? Are there 

additional criteria that we should 

require in order for a discussion to 

constitute an ESG engagement meeting, 

for example, by requiring that meetings 

be with personnel of a particular 

seniority (such as executive officer or 

board member) of an issuer, requiring 

that the meeting must only discuss ESG 

issues? 

84. Is it possible that funds will 

construe the term ‘‘ESG engagement 

meeting’’ more liberally than investors, 

resulting in a higher reported number 

than if the definition of ESG engagement 

meeting were more narrow? Should we 

provide additional guidance on the 

definition of ESG engagement meeting 

or require additional policies and 

procedures, recordkeeping, or 

disclosure in order to assist in making 

funds’ approaches to what constitutes 

an ESG engagement meeting more 

consistent between funds and more 

consistent with investors’ expectations? 

For example, should we require funds to 

develop written documentation 

regarding their engagement objectives, 

performance indicators to measure 

progress, monitoring and evaluation of 

ESG engagement meetings, or 

development of relationships with 

issuers? How do funds currently set and 

track their ESG engagement objectives? 

Is the requirement that progress toward 

an ESG goal be ‘‘measurable’’ 

sufficiently clear? Should we provide 

additional guidance or context regarding 

the definition of ‘‘measurable’’ as used 

in this instruction? Are there certain 

ESG goals where progress is not 

measurable where it would be 

appropriate for funds to be required to 

describe their engagement strategy? 

85. Should funds be required to 

provide additional information 

regarding their engagement strategy, 

either instead of or in addition to the 


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118See, e.g. Robeco Survey Reveals Big Investor 

Shift on Climate Change and Decarbonization (Mar. 

22, 2021), available at https://www.robeco.com/en/ 

media/press-releases/2021/robeco-survey-revealsbig-investor-shift-on-climate-change-anddecarbonization.html (stating that a survey of 300 

of the world’s largest institutional and wholesale 

investors revealed that, while climate change is a 

significant factor in the investment policy of almost 

three-quarters (73%) of investors who were 

surveyed, 44% of surveyed investors viewed the 

lack of data and reporting as the biggest obstacle to 

implementing decarbonization). Additionally, 

investor demand for improved climate-related 

metric disclosure has recently developed in the 

private equity market. A coalition of private equity 

firms has formed to standardize ESG disclosures by 

selecting 6 quantitative metrics, including a GHG 

emissions metric, that portfolio companies will 

have to report and that private equity funds would 

then report to their limited partners. See 

Institutional Limited Partners Association, ESG 

Data Convergence Project, available at https://

ilpa.org/ilpa_esg_roadmap/esg_data_convergence_

project/. 

119See CDP’s ‘‘The Time to Green Finance,’’ 

(‘‘CDP Report’’) available at https://www.cdp.net/ 

en/research/global-reports/financial-servicesdisclosure-report-2020. 

120See Sustainable finance and market integrity: 

promise only what you can deliver, A regulatory 

perspective on environmental impact claims 

associated with sustainable retail funds in France, 

2investinginitiative, July 2021, available at 

Sustainable-Finance-and-Market-Integrity.pdf 

(2degrees-investing.org); see also CFA Institute, 

Global ESG Disclosure Standards for Investment 

Products (2021), available at https:// 

www.cfainstitute.org/-/media/documents/ESGstandards/Global-ESG-Disclosure-Standards-forInvestment-Products.pdf (explaining that, because 

of the wide variety of methods that the investment 

management industry uses to incorporate ESG into 

its investment process and the lack of standardized 

disclosures around ESG, it is difficult for investors 

to sort these products into well-defined categories). 

121See supra at text following footnote 4 

(describing greenwashing). 

122See proposed Item 27(b)(7)(i)(E) of Form N– 

1A; proposed Instruction 4.(g)(1)(E) to Item 24 of 

Form N–2. 

123Except as otherwise provided or the context 

requires, when we refer to an ‘‘environmentallyfocused fund’’ in this release, we are referring to an 

ESG-Focused Fund that considers environmental 

factors as part of its investment strategy that has not 

made this affirmative disclosure in the ‘‘ESG 

Strategy Overview’’ table in the fund’s prospectus. 

124See supra footnote 10 (defining the TCFD). 

125 In this regard, several studies have found that 

GHG emissions data prepared pursuant to the GHG 

Protocol have become the most commonly 

referenced measurements of a company’s exposure 

to climate-related risks See, e.g., C. Kauffmann, C. 

Te ́bar Less, and D. Teichmann (2012), Corporate 

Greenhouse Gas Emission Reporting: A Stocktaking 

of Government Schemes, OECD Working Papers on 

International Investment, 2012/01, OECD 

Publishing, at 8, available at http://dx.doi.org/ 

10.1787/5k97g3x674lq-en (‘‘For example, the use of 

scope 1, 2, 3 to classify emissions as defined by the 

GHG Protocol has become common language and 

practice today.’’). 

126See proposed Item 27(b)(7)(i)(E) of Form N–1A 

and proposed Instruction 4.(g)(1)(E) to Item 24 of 

Form N–2. 

proposed narrative explanation and 

statistics regarding number of ESG 

engagement meetings and progress 

toward key performance indicators? If 

we required additional information, 

what elements should a fund be 

required to include? Could the proposed 

disclosure of narrative information or 

statistics regarding ESG engagement 

meetings result in investors being 

misled as to the nature or results of a 

fund’s ESG strategy? 

86. As proposed, the form would 

require funds to report statistics 

regarding the number of ESG 

engagements meetings across their 

entire portfolio, irrespective of the ESG 

goal of the meeting; should we instead 

require funds to break down their 

engagement statistics based on category? 

Would this provide helpful detail for an 

investor seeking to assess a fund’s 

engagement on a particular topic? 

Would the breadth of potential 

categories make it difficult to convey the 

overall extent of a fund’s engagement? 

Are there particular categories of 

engagement where investors would find 

it useful for ESG engagement meeting 

statistics to be presented separately? 

Would subcategorizing the statistics in 

this fashion present any challenges, 

such as administrative burden for funds 

or complexity in determining the 

particular category into which an ESG 

engagement meeting falls? 

(d) GHG Emissions Metrics Disclosure 

(1) Scope of Proposed Rule 

Investors who seek to invest in 

environmentally focused funds have 

shown an increasing interest in 

consistent and comparable climaterelated disclosures, including emissions 

metrics.118 Environmentally focused 

funds have taken various approaches to 

address this investor interest. Some 

environmentally focused funds provide 

metrics or other quantifiable 

information in fund shareholder reports 

or marketing materials regarding the 

amount of GHG emissions financed by 

such funds.119 However, this type of 

disclosure is inconsistent across funds, 

and funds vary in the methodologies 

they use to generate such GHG-related 

quantitative data. Other funds make 

vague or broad claims regarding the 

GHG emissions of their portfolio of 

investments.120

The current lack of consistent, 

comparable and decision-useful data 

makes it difficult for investors to make 

better informed investment decisions 

that are in line with their ESG 

investment goals and to assess any 

GHG-related claims a fund has made. It 

also may lead to potential greenwashing 

and compromise the reliability of 

sustainable investment product 

disclosures.121 These concerns are 

heightened for funds that make specific 

claims regarding the GHG emissions or 

emissions intensity of their portfolios 

because such claims may give rise to 

specific investor expectations regarding 

the impact of the fund’s investments on 

the environment. At the same time, we 

are requesting comment on ways in 

which registrants could have flexibility 

in making the necessary disclosures. 

Therefore, we are proposing to require 

an ESG-Focused Fund that considers 

environmental factors as part of its 

investment strategy to disclose the 

carbon footprint and the weighted 

average carbon intensity (‘‘WACI’’) of 

the fund’s portfolio in the MDFP or 

MD&A section of the fund’s annual 

report as applicable.122 This proposed 

requirement would apply to ESGFocused Funds that indicate that they 

consider environmental factors in 

response to Item C.3(j)(ii) on Form N– 

CEN, but do not affirmatively state that 

they do not consider issuers’ GHG 

emissions as part of their investment 

strategy in the ‘‘ESG Strategy Overview’’ 

table in the fund’s prospectus 

(‘‘environmentally focused fund’’).123

As discussed in more detail below, the 

carbon footprint and WACI metrics are 

generally aligned with the 

recommendations from the TCFD 124

and Partnership for Carbon Accounting 

Financials (‘‘PCAF’’) frameworks and 

based on emission data consistent with 

those defined by the GHG Protocol 

framework.125

We recognize, however, that not all 

ESG-Focused Funds that consider 

environmental factors as part of their 

investment strategies consider the GHG 

emissions of the issuers in which they 

invest as part of their investment 

strategies. Therefore, and as discussed 

above, a fund would not be required to 

disclose its GHG emissions metrics if it 

affirmatively states in the ‘‘ESG Strategy 

Overview’’ table in the fund’s 

prospectus that it does not consider 

issuers’ GHG emissions as part of its 

investment strategy.126 We believe it is 

appropriate to limit the scope of funds 

that would be required to disclose GHG 

emissions data to those funds where 

GHG emissions data play a role in the 

fund’s stated investment strategy. We 

believe that this approach appropriately 

limits the scope of this disclosure to 

funds that consider GHG emissions in 

their investment strategies, and ensures 

that investor expectations on a fund’s 

approach to GHG emissions are aligned 

with the fund’s actual investment 

strategy. 

These requirements also would apply 

to a BDC that is an environmentally 

focused fund. The Commission has 

proposed in a separate release to require 


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127See The Enhancement and Standardization of 

Climate-Related Disclosures for Investors, 33–11042 

(Mar. 21, 2022) [87 FR 21334 (Apr. 11, 2022)] 

(‘‘Climate Disclosure Proposing Release’’). 

128See, e.g., letters from ERM CVS; and Natural 

Resources Defense Council; see also Greenhouse 

Gas Protocol, About Us | Greenhouse Gas Protocol 

(ghgprotocol.org). For example, the Environmental 

Protection Agency (‘‘EPA’’) Center for Corporate 

Climate Leadership references the GHG Protocol’s 

standards and guidance as resources for companies 

that seek to calculate their GHG emissions. See, e.g., 

EPA Center for Corporate Climate Leadership, 

Scope 1 and Scope 2 Inventory Guidance, available 

at https://www.epa.gov/climateleadership/scope-1- 

and-scope-2-inventory-guidance. 

129The Kyoto Protocol, adopted in 1997, 

implemented the United Nations Framework 

Convention on Climate Change by obtaining 

commitments from industrialized countries to 

reduce emissions of the seven identified gasses 

according to agreed targets. See United Nations 

Climate Change, What is the Kyoto Protocol? The 

EPA includes these seven greenhouse gases in its 

greenhouse gas reporting program. See, e.g., EPA, 

GHGRP Emissions by GHG. 

130See World Business Council for Sustainable 

Development and World Resources Institute, The 

Greenhouse Gas Protocol, A Corporate Accounting 

and Reporting Standard REVISED EDITION. Under 

the GHG Protocol, Scope 1 emissions are direct 

GHG emissions that occur from sources owned or 

controlled by the company, such as emissions from 

company-owned or controlled machinery or 

vehicles. Scope 2 emissions are those indirect 

emissions primarily resulting from the generation of 

electricity purchased and consumed by the 

company. Scope 3 emissions are all other indirect 

emissions not accounted for in Scope 2 emissions. 

These emissions are a consequence of the 

company’s activities but are generated from sources 

that are neither owned nor controlled by the 

company. 

131See supra footnote 10; See UN Environment 

Programme Finance Initiative, Task Force on 

Climate-Related Financial Disclosures, available at 

https://www.unepfi.org/climate-change/tcfd/. 

132See Final Report, Recommendations of the 

TCFD (June 2017), available at https://

assets.bbhub.io/company/sites/60/2020/10/FINAL2017-TCFD-Report-11052018.pdf (‘‘2017 TCFD 

Guidance’’). 

133See Implementing the Recommendations of 

the Task Force on Climate-related Financial 

Disclosures (Oct. 2021) (‘‘Updated TCFD 

Guidance’’), available at https://www.fsb.org/wpcontent/uploads/P141021-4.pdf. (defining the 

WACI metric as a portfolio’s exposure to carbonintensive companies, expressed in tons of carbon 

dioxide equivalents (’’ CO2e’’) per million dollars of 

the portfolio company’s revenue and defining the 

carbon footprint metric as the total carbon 

emissions for a portfolio normalized by the market 

value of the portfolio, expressed in tons CO2e per 

million dollars invested). 

134See e.g., Reporting on Enterprise Value 

Illustrated with a Prototype Climate-related 

Financial Disclosure Standard, CDP, CDSB, GRI, 

IIRC, and SASB, (Dec. 2020) available at Reportingon-enterprise-value_climate-prototype_Dec20.pdf 

(netdna-ssl.com); see also Financial Conduct 

Authority (‘‘FCA’’), Enhancing Climate Related 

Disclosures by Asset Managers, Life Insurers, and 

FCA-Regulated Pension Providers (2021), available 

at https://www.fca.org.uk/publication/consultation/ 

cp21-17.pdf (‘‘FCA Consultation Paper’’) (proposal 

to make TCFD-aligned disclosures mandatory in the 

UK); see also New Zealand Government Press 

Release, New Zealand Becomes First in the World 

to Require Climate Risk Report (Sept. 15, 2020), 

available at https://www.beehive.govt.nz/release/ 

new-zealand-first-world-require-climate-riskreporting (adopting a mandatory climate-related 

financial disclosure regime in line with the TCFD 

framework). 

135Scope 3 emissions include the financed 

emissions of an investment portfolio and are 

calculated based on the GHG emissions of each 

company in which the investment portfolio invests. 

See infra footnote 155 (defining Scope 3 emissions). 

136See Partnership for Carbon Accounting 

Financials, The Global GHG Accounting and 

Reporting Standard for Financial Industry (Nov. 

2020), available at https://carbonaccounting

financials.com/files/downloads/PCAF-Global-GHGStandard.pdf. Financed emissions are emissions 

that are financed by loans and investments in a 

portfolio of a financial institution, including mutual 

fund portfolios. Financed emissions fall within the 

Greenhouse Gas Protocol’s (‘‘GHG Protocol’s’’) 

Scope 3 downstream emissions, specifically listed 

as category 15 Scope 3 emissions. 

BDCs to provide climate-related 

information in their annual reports on 

Form 10–K, including a BDC’s Scope 3 

emissions if material or if Scope 3 

emissions are part of an announced 

emissions reduction target.127 We 

believe the GHG emission disclosure we 

are proposing in this release would 

complement that climate disclosure, if 

both proposals were adopted. As 

discussed in more detail below, carbon 

footprint and WACI together would 

provide investors in environmentally 

focused funds with a comprehensive 

view of the GHG emissions associated 

with the fund’s investments, both in 

terms of the footprint or scale of the 

fund’s financed emissions and in terms 

of the portfolio’s exposure to carbonintensive companies. We believe these 

specific measures are appropriate for 

environmentally focused funds, 

regardless of whether the fund is a 

registered open- or closed-end fund or 

business development company. 

We believe that these requirements 

would advance the Commission’s 

mission by meeting the demands of 

investors in environmentally focused 

funds for consistent and reasonably 

comparable quantitative information 

regarding the GHG emissions associated 

with those funds’ portfolios. Investors 

may need GHG-related quantitative data 

in environmentally focused funds where 

GHG emissions data play a role in the 

fund’s investment strategy because such 

disclosures would provide investors 

with consistent, comparable, and 

decision-useful information about their 

portfolio of investments that are 

relevant to their investment decisions. 

This information would better allow 

investors to make decisions in line with 

their ESG investment goals and 

expectations set by the fund, and allow 

investors in these funds to assess GHGrelated claims that a fund has made or 

to compare the fund’s GHG data against 

the fund’s investment strategy. 

(2) Emissions Reporting Frameworks 

and the Development of Financed 

Emissions Metrics for Investment 

Portfolios 

The GHG Protocol has become the 

most widely used global greenhouse gas 

accounting standard for companies.128

The GHG Protocol’s Corporate 

Accounting and Reporting Standard 

provides uniform methods to measure 

and report the greenhouse gases covered 

by the Kyoto Protocol.129 It also 

introduced the concept of ‘‘scopes’’ of 

emissions to help delineate those 

emissions that are directly attributable 

to the reporting entity and those that are 

indirectly attributable to the company’s 

activities.130 The GHG Protocol has been 

updated periodically since its original 

publication and has been broadly 

incorporated into sustainability 

reporting frameworks, including, among 

others, the TCFD and the PCAF 

frameworks for reporting of Scope 3 

financed emissions at the investment 

portfolio level. These frameworks are 

discussed in more detail below. 

As fund investors’ interest in GHG 

emissions has increased, substantial 

work also has been done to develop 

effective means to present aggregated 

GHG emissions information at a 

portfolio level in a comparable, 

consistent, and decision-useful way. 

Specifically, to address investor 

concerns and expectations, the TCFD 

developed a framework to foster 

consistent climate-related financial 

disclosures that could be used by 

organizations across sectors and 

industries, including funds.131 As part 

of its recommendations initially 

published in 2017, the TCFD suggested 

several metrics that asset managers and 

asset owners, including funds, can use 

to calculate the GHG emissions of their 

investments.132 These metrics initially 

focused on calculating financed Scope 1 

and Scope 2 emissions and included, 

among others, the WACI and carbon 

footprint metrics.133 Several 

international third-party ESG 

organizations and regulators have 

endorsed the TCFD framework, 

including its GHG emissions metrics, 

and have worked to implement the 

framework and converge around a 

unified approach to climate 

reporting.134

There has been significant progress in 

the development of GHG metric 

calculations since 2017, particularly in 

the area of financed GHG emissions.135

In November of 2020, PCAF established 

the first global carbon accounting 

standard for the measurement and 

disclosure of financed emissions 

(‘‘PCAF Standard’’),136 which has 


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137See Updated TCFD Guidance, supra footnote 

133. 

138See id. See also GHG Protocol Press Release, 

New Standard Developed to Help Financial 

Industry Measure and Report Emissions (Mar. 

2021), available at https://ghgprotocol.org/blog/ 

new-standard-developed-help-financial-industrymeasure-and-report-emissions. 

139See the PCAF Standard, supra footnote 136. 

140The TCFD also recommended that asset 

owners consider providing other carbon 

footprinting and exposure metrics that they believe 

are decision useful for investors. 

141See Sustainable Finance and EU Taxonomy: 

Commission takes further steps to channel money 

towards sustainable activities, available at https:// 

ec.europa.eu/commission/presscorner/detail/en/ip_

21_1804 (summarizing the European Commission’s 

proposed mandatory TCFD-aligned disclosure 

within new Corporate Sustainability Reporting 

Directive, including data regarding GHG emissions); 

see also FCA Consultation Paper, supra footnote 

134, at 32 (proposal by the FCA to require certain 

FCA regulated entities, including funds, to disclose 

carbon emissions consistent with the TCFD 

framework and PCAF Standard). 

142See proposed Item 27(b)(7)(i)(E) of Form N– 

1A; proposed Instruction 4.(g)(1)(E) to Item 24 of 

Form N–2; Proposed Instruction 10 to Item 24 of 

Form N–2 [17 CFR 274.11a–1]. 

143Expressing GHG emissions in terms of CO2e is 

the common unit of measurement to indicate the 

global warming potential of a greenhouse gas. See 

infra footnote 153. We are proposing to require this 

expression to be presented per millions of dollars, 

rather than dollars, invested in the fund to avoid 

smaller calculations that may be less informative to 

investors and more difficult to calculate. 

144See proposed Instruction 1(a)(i) of proposed 

Item 27(b)(7)(i)(E) of Form N–1A and proposed 

Instruction 1(a)(i) of Instruction 4.(g)(1)(E) to Item 

24 of Form N–2. 

145A portfolio company’s total debt is the sum of 

the book value of its short- and long-term debt. 

146WACI is consistent with the emissions metrics 

suggested by the TCFD. See Updated TCFD 

Guidance, supra footnote 137; see also Climate 

Disclosure Proposing Release, supra footnote 127 

(proposing to require corporate issuers to disclose 

their GHG intensity in terms of metric tons of CO2e 

per unit of total revenue and per unit of production 

for the fiscal year). 

subsequently been endorsed by the 

TCFD 137 in updated guidance issued by 

the TCFD in 2020 and reviewed by the 

GHG Protocol.138 Under the PCAF 

Standard, a financial institution 

(including a fund) measures and reports 

the Scope 1 and Scope 2 emissions of 

the investments it holds as of its fiscal 

year-end using the PCAF 

methodologies.139

In addition, under the PCAF 

Standard, the disclosure of a portfolio 

investment’s Scope 3 emissions are 

separate from its Scope 1 and Scope 2 

emissions. Because of the limited 

information regarding Scope 3 

emissions currently available, PCAF 

follows a phased-in approach to Scope 

3 reporting, with reporting of Scope 3 

emissions only for certain select sectors 

that provide Scope 3 emissions data. 

PCAF recognized the difficulties 

inherent in the comparability, coverage, 

transparency, and reliability of Scope 3 

data of the investments held by a 

financial institution when attempting to 

capture the Scope 3 dimension of 

financed emissions. Therefore, by 

separating Scope 3 emissions from 

Scope 1 and 2 emissions and having 

Scope 3 emissions reported by sector, 

the PCAF Standard seeks to make Scope 

3 emissions reporting more common 

practice by improving data availability 

and quality over time. 

TCFD endorsed the PCAF Standard in 

its updated guidance and recommended 

that asset owners disclose the 

appropriate financed-emissions metric 

based on PCAF’s methodology along 

with the WACI metric, if relevant.140

Several foreign jurisdictions are 

considering regulations that would 

require financial institutions, including 

funds and advisers, to disclose GHG 

emissions data.141

(3) Proposed Fund Metrics Reporting 

Requirement 

The proposal would require 

environmentally focused funds to 

disclose the carbon footprint and the 

WACI of the fund’s portfolio in the 

MDFP or MD&A section of the fund’s 

annual report as applicable.142 Carbon 

footprint is the total carbon emissions 

associated with the fund’s portfolio, 

normalized by the fund’s net asset value 

and expressed in tons of CO2e per 

million dollars invested in the fund.143

Carbon footprint is an economic 

measure of the amount of absolute GHG 

emissions that a fund portfolio finances, 

through both equity ownership and debt 

investments, normalized by the size of 

the fund. This measure would allow 

investors to understand the extent to 

which their investments are exposed to 

carbon-related assets and their 

associated risks, as well as the climate 

impact of fund’s investment decisions. 

For example, if a company has an 

‘‘enterprise value’’ of $100 million in 

equity capital and no debt, and a fund 

buys $10 million of the fund’s equity 

securities, this measure treats the fund 

as having ‘‘financed’’ 10% of the 

company’s emissions and attributes 

those emissions to the fund. Where the 

sum of the financed emissions is 

divided by the net asset value of the 

fund, as we are proposing, this provides 

a normalized value of the fund’s 

financed emissions that allows an 

investor to compare funds of different 

sizes with each other. Without 

normalizing for the fund’s size, a larger 

fund might have a larger carbon 

footprint than a smaller fund simply 

because of the larger fund’s size. 

To calculate the fund’s carbon 

footprint under the proposal, a fund 

would first calculate the portfolio 

company’s enterprise value.144

Enterprise value is the sum of the 

portfolio company’s equity value plus 

its total debt.145 We are proposing to 

include both equity and debt because a 

portfolio company can use capital raised 

from either or both of equity and debt 

to finance its business activities that 

generate GHG emissions. A fund would 

then calculate the carbon emissions 

associated with each portfolio holding 

by dividing the current value of the 

fund’s investment in the portfolio 

company by the portfolio company’s 

enterprise value, then multiplying the 

resulting amount by the portfolio 

company’s Scope 1 and Scope 2 GHG 

emissions. Finally, the fund would add 

up the carbon emissions associated with 

each portfolio holding and divide the 

resulting amount by the current net 

asset value of the portfolio to derive the 

fund’s carbon footprint. 

Using the example above to illustrate 

the calculation, the portfolio company 

had an enterprise value of $100 million 

and the fund owned equity securities 

equal to 10% of the company’s 

enterprise value. If a company’s Scope 

1 and 2 emissions totaled 2 metric tons 

of CO2e in the last year, the emissions 

attributable to the fund for this 

calculation would be 10% of 2 metric 

tons of CO2e (or 0.2 metric tons of 

CO2e). The fund would repeat this 

calculation for each of its portfolio 

holdings and then add up the resulting 

values for all of its portfolio holdings. 

The fund would then divide the 

resulting amount by the net asset value 

of the fund to derive the fund’s carbon 

footprint. 

WACI is the fund’s exposure to 

carbon-intensive companies, expressed 

in tons of CO2e per million dollars of 

the portfolio company’s total 

revenue.146 A fund’s WACI measures a 

fund’s exposure to carbon-intensive 

companies. That is, this measure allows 

an investor to see, in quantitative terms, 

the portfolio companies’ carbon 

intensity—the portfolio companies’ 

GHG emissions relative to their 

revenue—rather than the companies’ 

absolute GHG emissions. For example, if 

10% of the fund was invested in XYZ 

company, the fund would determine 

XYZ company’s carbon emissions per 

million dollars of revenue by dividing 

the company’s Scope 1 and 2 GHG 

emissions by the company’s total 

revenue (in millions of dollars). These 

emissions would then be attributed to 

the fund in proportion to the weight of 

the investment in the fund’s portfolio: 

ten percent of the emissions would be 

attributable to the fund because the 


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147The current value of the portfolio’s investment 

in the portfolio company and the fund’s current net 

asset value would be calculated as of the end of the 

most recently completed fiscal year. 

148See proposed Instruction 1(b)(i) of proposed 

Item 27(b)(7)(i)(E) of Form N–1A and proposed 

Instruction 1(b)(i) of Instruction 4.(g)(1)(E) to Item 

24 of Form N–2. 

149Transition risks are the actual or potential 

negative impacts on a portfolio company’s 

consolidated financial statements, business 

operations, or value chains attributable to 

regulatory, technological, and market changes to 

address the mitigation of, or adaptation to, climaterelated risks, such as increased costs attributable to 

changes in law or policy, reduced market demand 

for carbon-intensive products leading to decreased 

prices or profits for such products, the devaluation 

or abandonment of assets, risk of legal liability and 

litigation defense costs, competitive pressures 

associated with the adoption of new technologies, 

reputational impacts (including those stemming 

from a portfolio company’s customers or business 

counterparties) that might trigger changes to market 

behavior, consumer preferences or behavior, and 

portfolio company’s behavior. 

150Carbon offsets represent an emissions 

reduction or removal of greenhouse gases in a 

manner calculated and traced for the purpose of 

offsetting company’s GHG emissions. See, EPA, 

Offsets and RECs: What’s the Difference?, available 

at https://www.epa.gov/sites/default/files/2018-03/ 

documents/gpp_guide_recs_offsets.pdf. 

151This proposed approach is again similar to the 

approach of the GHG Protocol as well as the PCAF 

Standard. See GHG Protocol, Corporate Accounting 

and Reporting Standard, Chapter 9; see also the 

PCAF Standard, supra footnote 136 at text 

accompanying n. 12. 

152The proposal would also define GWP as a 

factor describing the global warming impacts of 

different greenhouse gases. It is a measure of how 

much energy will be absorbed in the atmosphere 

over a specified period of time as a result of the 

emission of one ton of a greenhouse gas, relative to 

the emissions of one ton of carbon dioxide. See 

proposed Instruction 1(d)(ii) of proposed Item 

27(b)(7)(i)(E) of Form N–1A and proposed 

Instruction 1(d)(ii) of Instruction 4.(g)(1)(E) to Item 

24 of Form N–2. 

153See proposed Instruction 1(d)(i) of proposed 

Item 27(b)(7)(i)(E) of Form N–1A and proposed 

Instruction 1(d)(i) of Instruction 4.(g)(1)(E) to Item 

24 of Form N–2. 

154Under the proposal, direct emissions are GHG 

emissions from sources that are owned or 

controlled by a portfolio company and indirect 

emissions are GHG emissions that result from the 

activities of the portfolio company, but occur at 

sources not owned or controlled by the portfolio 

company. See proposed instruction 1(d)(iv) of 

proposed Item 27(b)(7)(i)(E) of Form N–1A and 

proposed Instruction 1(d)(iv) of Instruction 

4.(g)(1)(E) to Item 24 of Form N–2. The proposal 

would also define ‘‘Greenhouse gases,’’ in turn, to 

mean carbon dioxide, methane, nitrous oxide, 

nitrogen trifluoride, hydrofluorocarbons, 

perfluorocarbons, or sulphur hexafluoride. See 

proposed instruction 1(d)(iii) of proposed Item 

27(b)(7)(i)(E) of Form N–1A and proposed 

Instruction 1(d)(iii) of Instruction 4.(g)(1)(E) to Item 

24 of Form N–2. 

155Under the proposal, Scope 1 emissions would 

be defined as the direct GHG emissions from 

operations that are owned or controlled by a 

portfolio company. Scope 2 emissions would be 

defined as indirect GHG emissions from the 

generation of purchased or acquired electricity, 

steam, heat, or cooling that is consumed by 

operations owned or controlled by a portfolio 

company. Finally, Scope 3 emissions would be 

defined as all indirect GHG emissions not otherwise 

included in a portfolio company’s Scope 2 

emissions, which occur in the upstream and 

downstream activities of a portfolio company’s 

value chain. See proposed Instructions 1(d)(v) 

through (vii) of Item 27(b)(7)(i)(E) of Form N–1A 

and proposed Instruction 1(d)(v) through (vii) of 

Instruction 4.(g)(1)(E) to Item 24 of Form N–2. 

Upstream activities in which Scope 3 emissions 

might occur include: a portfolio company’s 

purchased goods and services, a portfolio 

company’s capital goods; a portfolio company’s fuel 

and energy related activities not included in Scope 

1 or Scope 2 emissions; transportation and 

distribution of purchased goods, raw materials, and 

other inputs; waste generated in a portfolio 

Continued 

holding represents 10% of the fund’s 

net asset value.147

To calculate the fund’s WACI under 

the proposal, as reflected in the example 

above, a fund would first calculate the 

portfolio weight of each portfolio 

holding by dividing the value of the 

fund’s investment in the portfolio 

company by the current net asset value 

of the fund.148 The fund would then 

calculate the carbon emissions of each 

portfolio company by dividing the 

portfolio company’s Scope 1 and Scope 

2 GHG emissions by the portfolio 

company’s total revenue (in millions of 

dollars). These emissions would then be 

attributed to the fund in proportion to 

the weight of the investment in the 

fund’s portfolio, that is, if the fund’s 

investment in ABC Company 

represented 10% of the fund’s net asset 

value and ABC Company’s Scope 1 and 

2 GHG emissions divided by revenue 

was 1 million metric tons of CO2e, the 

emissions attributable to the fund under 

this calculation for ABC Company 

would be 10% of 1 million. The fund 

would perform this calculation for each 

portfolio company in its portfolio and 

the sum of the emissions attributable to 

the fund would be the fund’s WACI. 

We believe these measures together 

would provide investors in 

environmentally focused funds with a 

comprehensive view of the GHG 

emissions associated with the fund’s 

investments, both in terms of the 

footprint or scale of the fund’s financed 

emissions and in terms of the portfolio’s 

exposure to carbon-intensive 

companies. For example, a fund’s 

carbon footprint would help investors 

understand the extent to which a fund’s 

investments contribute to emissions and 

how that changes over time and 

compare it to other environmentally 

focused funds. On the other hand, a 

fund’s WACI would allow investors to 

analyze more effectively the fund’s 

exposure to climate risk and to 

reasonably compare the exposure to 

climate risk of different funds. For 

example, a fund’s WACI highlights for 

investors the extent to which a fund’s 

portfolio is exposed to portfolio 

companies with higher carbon intensity. 

These portfolio companies may be more 

susceptible to transition risk, that is, 

risks related to the expected transition 

to a lower carbon economy.149 These 

measures also are familiar to 

environmentally focused investors and 

fund managers, as they are generally 

consistent with standards developed by 

the PCAF (a measure similar to carbon 

footprint) and the TCFD (WACI). 

For both the carbon footprint and 

WACI measures, the proposed rules do 

not permit a fund to reduce the GHG 

emissions associated with a portfolio 

company as a result of the company’s 

use of purchased or generated carbon 

offsets.150 We believe that disclosing 

GHG emissions data without giving 

effect to any purchased or generated 

carbon offsets is appropriate, not only 

because such a measure would provide 

investors with important information 

about the magnitude of climate-related 

risk posed by a fund portfolio’s financed 

GHG emissions, but also because the 

value of offsets may change due to 

restrictions imposed by regulation or 

market conditions. A fund could 

disclose such offsets separately from its 

financed emissions if it believed this 

information was helpful to investors 

because funds are not restricted from 

providing additional information in the 

MDFP beyond what is permitted or 

required in the form.151 Similarly, if a 

fund engages in a short sale of a 

security, the proposed requirements do 

not include a provision that would 

permit the fund to subtract the GHG 

emissions associated with the security 

from the GHG emissions of the fund’s 

portfolio that are used to calculate the 

fund’s WACI or carbon footprint. A 

short sale would allow the fund to profit 

from a decline in value of the security, 

but would not reduce the extent of the 

fund’s financed emissions and may not 

offset the transition risk expressed by 

the fund’s WACI. 

We also are proposing several specific 

instructions that would apply to a 

fund’s calculation of its carbon footprint 

and WACI. First, the proposal would 

define CO2e to mean the common unit 

of measurement to indicate the global 

warming potential (‘‘GWP’’) 152 of each 

greenhouse gas, expressed in terms of 

the GWP of one unit of carbon 

dioxide.153 Additionally, the proposal 

would define GHG emissions to mean 

the direct and indirect greenhouse gases 

expressed in metric tons of CO2e.154 The 

proposal would also provide definitions 

for the types of emissions that should be 

calculated within financed Scopes 1, 2, 

and 3.155 For purposes of the definition 


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company’s operations; business travel by a portfolio 

company’s employees; employee commuting by a 

portfolio company’s employees; and a portfolio 

company’s leased assets related principally to 

purchased or acquired goods or services. 

Downstream emissions in which Scope 3 emissions 

might occur include: transportation and 

distribution of a portfolio company’s sold products; 

goods or other outputs; processing by a third party 

of a portfolio company’s sold products; use by a 

third party of a portfolio company’s sold products; 

end-of-life treatment by a third party of a portfolio 

company’s sold products; a portfolio company’s 

leased assets related principally to the sale or 

disposition of goods or services; a portfolio 

company’s franchises; and investments by a 

portfolio company. 

156See proposed instruction 1(d)(viii) of proposed 

Item 27(b)(7)(i)(E) of Form N–1A and proposed 

Instruction 1(d)(viii) of Instruction 4.(g)(1)(E) to 

Item 24 of Form N–2. 

157See supra footnotes 128–131 and 

accompanying text. 

158See proposed Instruction 1(d)(ix) of Item 

27(b)(7)(i)(E) of Form N–1A and proposed 

Instruction 1(d)(ix) of Instruction 4.(g)(1)(E) to Item 

24 of Form N–2. 

159Under the proposal, a portfolio company 

would not include an investment in a money 

market fund in reliance on rule 12d1–1. That rule 

defines a money market fund to mean a registered 

open-end management investment company 

regulated as a money market fund under rule 2a– 

7, or certain private funds that are limited to 

investing in the types of securities and other 

investments in which a money market fund may 

invest under rule 2a–7 and undertake to comply 

with that rule’s requirements. 

160See proposed Instruction 1(d)(xiii) of Item 

27(b)(7)(i)(E) of Form N–1A and proposed 

Instruction 1(d)(xiii) of Instruction 4.(g)(1)(E) to 

Item 24 of Form N–2. The proposal would define 

a derivatives investment to include any swap, 

security-based swap, futures contract, forward 

contract, option, any combination of the foregoing 

instruments, or any similar instrument. This list of 

instruments is consistent with the Commission’s 

rule regarding funds’ use of derivatives. See 17 CFR 

270.18f–4. 

161See proposed Instruction 1(d)(x) of Item 

27(b)(7)(i)(E) of Form N–1A and proposed 

Instruction 1(d)(x) to instruction 4.g.(1)(E) of Item 

24 of Form N–2. For example, an issuer’s equity 

value, total debt, and total revenue is generally 

included in registration statements and reports on 

Form 10–K or Form 20–F. Form 20–F is the 

Exchange Act form typically used by a foreign 

private issuer for its annual report or to register 

securities under the Exchange Act. 

162See proposed Instruction 1(d)(xii) of Item 

27(b)(7)(i)(E) of Form N–1A and proposed 

Instruction 1(d)(xii) of Instruction 4.(g)(1)(E) to Item 

24 of Form N–2. 

of Scope 3 emissions, the proposal also 

defines the term value chain to mean, in 

part, the upstream and downstream 

activities related to a portfolio 

company’s operations, including 

activities by a party other than the 

portfolio company.156 These definitions 

are generally consistent with the 

definitions provided in the GHG 

Protocol and PCAF Standard.157

Additionally, for both the carbon 

footprint and WACI measures, the fund 

would determine the GHG emissions 

associated with each ‘‘portfolio 

company’’ (or ‘‘portfolio holding’’), 

which we are proposing to define as: (a) 

an issuer that is engaged in or operates 

a business or activity that generates 

GHG emissions; or (b) an investment 

company, or an entity that would be an 

investment company but for section 

3(c)(1) or 3(c)(7) of the Investment 

Company Act (a ‘‘private fund’’), that 

invests in issuers described in clause 

(a), except for an investment in reliance 

on 17 CFR 12d1–1 (‘‘rule 12d1–1’’) 

under the Investment Company Act (i.e., 

investments in money market funds).158

This definition is designed to identify 

companies engaged in business 

activities that generate GHG emissions. 

Therefore, fund investments that are not 

‘‘portfolio companies’’—for example, 

cash, foreign currencies (or derivatives 

thereof), and interest rate swaps—would 

be excluded from the GHG metrics 

calculations because these investments 

do not generate GHG emissions. 

The definition would require a fund 

to take into account GHG emissions 

when the fund invests in other funds or 

private funds to avoid a fund investing 

in portfolio companies through such a 

fund structure without reflecting the 

associated emissions in the investing 

fund’s GHG metrics. If the underlying 

fund itself were an environmentally 

focused fund required to report its 

carbon footprint and WACI, the 

investing fund could determine the 

GHG emissions associated with the 

investment for purposes of calculating 

the investing fund’s carbon footprint 

and WACI by taking its pro rata share 

of the underlying fund’s GHG 

emissions. If the underlying fund was 

not required to disclose that 

information, the investing fund could 

look through its investment in the fund 

or private fund and take the investing 

fund’s pro rata share of the emissions of 

the portfolio holdings of the fund or 

private fund. For this purpose we 

believe it would be sufficient to identify 

an underlying fund’s holdings based on 

the underlying fund’s most recent 

financial statements. We are proposing 

an exception for fund investments in 

money market funds to allow the fund 

to invest in money market funds for 

cash management purposes without 

having to consider potential GHG 

emissions associated with the 

investment. Money market funds, which 

are regulated extensively under 17 CFR 

270.2a–7 (‘‘rule 2a–7’’), also may be 

more limited in their financed 

emissions because of their relatively 

limited holdings of commercial paper 

and similar investments.159

Additionally, if a fund obtains its 

exposure to a portfolio company by 

entering into a derivatives instrument, 

the derivatives instrument for purposes 

of the GHG metrics calculations would 

be treated as an equivalent position in 

the securities of the portfolio company 

that are referenced in the derivatives 

instrument.160 For example, if a fund 

enters into an equity total return swap 

on XYZ Company with a notional 

amount of $100 million, the fund would 

treat this investment as an investment in 

$100 million of the company’s equity 

securities when computing the fund’s 

carbon footprint and WACI. This 

approach would avoid creating an 

incentive for funds to invest in 

derivatives instead of cash market 

investments to avoid including the GHG 

emissions associated with those 

holdings in the portfolio-level GHG 

metric calculations. 

Third, the proposed instructions 

specify where the fund must obtain 

information required to perform the 

calculations. Funds would be required 

to obtain the information necessary to 

calculate a portfolio company’s 

enterprise value and the portfolio 

company’s total revenue from the 

company’s most recent public report 

required to be filed with the 

Commission pursuant to the Securities 

Exchange Act of 1934 or the Securities 

Act of 1933 (‘‘regulatory report’’), 

containing such information.161 We 

believe a portfolio company’s most 

recent regulatory filings would be the 

most reliable sources of this information 

where available. Absent a regulatory 

report containing the necessary 

information, the fund would calculate 

the portfolio company’s enterprise value 

and total revenue based on information 

provided by the company. Furthermore, 

if a portfolio company reports its 

revenue in currency other than U.S. 

dollars, the proposed instructions 

would require a fund to convert the 

portfolio company’s revenue into U.S. 

dollars using the exchange rate as of the 

date of the relevant regulatory report 

providing the company’s revenue. This 

conversion is necessary so that all of the 

financial information underlying the 

fund’s carbon footprint and WACI is 

expressed in U.S. dollars. 

Additionally, where the calculations 

require the value of the fund’s holding 

in a portfolio company or the fund’s net 

asset value, the fund would use the 

values as of the end of the fund’s most 

recently completed fiscal year (i.e., the 

values included in the fund’s annual 

report in which the carbon footprint and 

WACI disclosure would appear).162 We 

recognize that the value of the fund’s 

net assets and the value of any 

particular portfolio holding likely 

would be as of a date that differs from 

the date of the data related to the 


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Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36681 

163See proposed Instruction 1(d)(xi)(A) of Item 

27(b)(7)(i)(E) of Form N–1A and proposed 

Instruction 1(d)(xi)(A) of Instruction 4.(g)(1)(E) to 

Item 24 of Form N–2. 

164For example, information filed by a portfolio 

company with the Commission in Exchange Act 

periodic reports is subject to disclosure controls 

and procedures, which we believe help to ensure 

that such a company maintains appropriate 

processes for collecting and communicating any 

GHG emissions information included in the report. 

See 17 CFR 240.13a–15. 

165See proposed Instruction 1(d)(xi)(B) of Item 

27(b)(7)(i)(E) of Form N–1A and proposed 

Instruction 1(d)(xi)(B) of Instruction 4.(g)(1)(E) to 

Item 24 of Form N–2. Portfolio company GHG 

emissions information that is only accessible from 

a third-party service provider would not be 

considered information that is publicly provided by 

the portfolio company. See infra footnote168 and 

related text (stating that funds could take into 

account information provided by third party service 

providers as part of the good faith estimation 

process). 

166See proposed Instruction 1(d)(xi)(C) of Item 

27(b)(7)(i)(E) of Form N–1A and proposed 

Instruction 1(d)(xi)(C) of Instruction 4.(g)(1)(E) to 

Item 24 of Form N–2. 

167See the PCAF Standard, supra footnote 136, at 

text following n.65 (explaining that estimates using 

emissions factors from production-based models 

(i.e., emission intensity per physical activity) are 

preferred over emissions factors from revenue-based 

models (i.e., emission intensity per revenue)). 

168There are a number of third-party service 

providers that currently provide GHG emissions 

data to funds. 

169See e.g., Azar et al., The Big Three and 

corporate carbon emissions around the world, 

(2021), at n.9, available at https://reader.

elsevier.com/reader/sd/pii/S0304405X21001896?

token=23AED5DA8B483D8297FD

F29337EC3D429A8E4A88984AF54214180DF0761

7BB9F51FE2357B456C9023ED605E67363FBA7&

originRegion=us-east1&originCreation=20220201195451 (noting that 

some ESG third-party vendors provide corporate 

issuer carbon emissions data for 80% of global 

market capitalization); see also Bolton P., 

Kacperczyk M. 2020. Do investors care about carbon 

risk?, National Bureau of Economic Research 

available at https://papers.ssrn.com/sol3/ 

papers.cfm?abstract_id=3398441. 

170 Id. 

171See Timo Busch, Matthew Johnson, Thomas 

Pioch, Corporate carbon performance data: Quo 

vadis? (2020), available at Corporate carbon 

performance data: Quo vadis?—Busch—2022— 

Journal of Industrial Ecology—Wiley Online Library 

(comparing available corporate carbon emission 

data across several main providers and finding, 

among other things, that the consistency of data is 

high in scopes 1 and 2 when the outliers are 

removed). 

172See proposed Instruction 1(d)(xi)(C) of Item 

27(b)(7)(i)(E) of Form N–1A and proposed 

Instruction 1(d)(xi)(C) to instruction 4.g.(2)(B) of 

Item 24 of Form N–2. 

portfolio company, which would be 

based on the portfolio company’s fiscal 

year end. We believe that any data 

anomalies that may occur in a given 

year are justified by the benefits of 

transparency, comparability and 

simplicity of implementation derived 

from the proposed approach. 

The proposed instructions also would 

address the sources of portfolio 

companies GHG emissions. We are 

proposing a data hierarchy for sources 

that funds would be required to use in 

obtaining portfolio company GHG 

emissions data. Specifically, if a 

portfolio company discloses its Scopes 

1 and 2 emissions in a regulatory report, 

the fund would be required to use these 

disclosed emissions from the most 

recent regulatory report when 

calculating carbon footprint and 

WACI.163 Issuers also may disclose GHG 

information in regulatory reports absent 

a current specific regulatory 

requirement to do so. We believe that 

GHG emissions information that is filed 

with the Commission in a regulatory 

report, if available, would be the most 

reliable source of such information.164 If 

a portfolio company does not file such 

regulatory reports, or they do not 

contain the GHG information necessary 

for the fund to calculate carbon 

footprint and WACI, the fund would be 

required to use GHG emissions 

information that is otherwise publicly 

provided by the portfolio company, 

such as a publicly available 

sustainability report published by the 

company.165 Using a publicly available 

source of the information provided by 

the company would help provide 

consistency among different funds’ 

calculations of carbon footprint and 

WACI where the information is not 

disclosed in a regulatory report. 

We recognize that some portfolio 

companies do not report GHG emissions 

in regulatory reports and may not 

otherwise make the information 

publicly available (‘‘non-reporting 

portfolio companies’’). If a fund, after 

conducting a reasonable search, does 

not identify Scope 1 and Scope 2 

emissions information publicly 

provided by the portfolio company, the 

fund would use a good faith estimate of 

the portfolio company’s Scope 1 and 

Scope 2 emissions.166 Requiring a fund 

to make a good faith estimate—rather 

than excluding non-reporting portfolio 

companies altogether—would allow the 

fund to ascribe GHG emission 

information to each of its portfolio 

holdings and therefore provide 

portfolio-wide measures of the fund’s 

carbon footprint and carbon intensity. 

We are not proposing to require that 

funds use a particular estimation 

method. We understand there are 

different approaches to estimating a 

portfolio company’s GHG emissions that 

funds could use when calculating their 

WACI or carbon footprint under the 

proposal. For example, under the PCAF 

Standard, funds use a non-reporting 

portfolio company’s primary physical 

activity data, such as the company’s 

energy consumption, where 

available.167 Where that data is not 

available, funds use other economicactivity emissions factors for estimates, 

including sector-specific industry 

averages. We also understand that thirdparty service providers provide 

estimated emissions data for portfolio 

companies that a fund could take into 

account in forming a good faith 

estimate.168

While there has been a significant 

increase in the public availability and 

quality of corporate GHG emissions 

data,169 the proposed requirement to 

perform good faith estimates in certain 

cases reflects that not all of the 

companies in which an environmentally 

focused fund may invest will currently 

provide the GHG information necessary 

for the fund to calculate the proposed 

financed emissions disclosures.170 We 

recognize that the methodologies and 

assumptions underlying different good 

faith estimates of a company’s GHG 

emissions data may impact the 

consistency of the data across different 

portfolio holdings of one fund as well as 

the comparability of funds with the 

same or similar portfolio holdings. GHG 

information produced by companies 

themselves, rather than estimated by a 

fund, also may not be fully comparable, 

due to the differences in assumptions 

and approaches at each company. We 

believe, however, that the proposed 

disclosure requirements would provide 

investors with an effective depiction of 

the GHG emissions associated with 

fund’s investments and provide a 

reasonable basis for comparison among 

funds, notwithstanding that the GHG 

information underlying the disclosures 

may not be calculated using identical 

methods and assumptions.171

In order for investors to understand 

the extent to which a fund’s carbon 

footprint and WACI metrics are based 

on estimated GHG emissions, a fund 

that uses estimates in these calculations 

would be required to disclose the 

percentage of the aggregate portfolio 

GHG emissions that was calculated 

using the fund’s good faith estimation 

process.172 The fund also would be 

required to provide a brief explanation 

of the process it used to calculate its 

good faith estimates of its portfolio 

company GHG emissions, including the 

data sources the fund relied on to 

generate these estimates. This brief 

explanation is designed to provide 

context for the fund’s carbon footprint 

and WACI and allow investors to take 

into the account the extent to which 

these calculations rely on estimates and 

the information on which those 

estimates are based. 


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36682 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

173See proposed Item 7 of Form N–CSR. See also 

proposed Instruction 10 to Item 24 of Form N–2 

(requiring BDCs to disclose, on Form 10–K, the 

information requiring by Item 7 of Form N–CSR). 

174 Id. 

175This layered approach to disclosure is in line 

with the Commission’s approach in other contexts. 

See, e.g., Enhanced Disclosure and New Prospectus 

Delivery Option for Registered Open-End 

Management Investment Companies, Investment 

Company Act Release No. 28584 (Jan. 13, 2009) [74 

FR 4546 (Jan. 26, 2009)]; see also Updated 

Disclosure Requirements and Summary Prospectus 

for Variable Annuity and Variable Life Insurance 

Contracts, Investment Company Act Release No. 

33814 (Mar. 11, 2020) [85 FR 25964 (May 1, 2020)]; 

Streamlined Shareholder Report Proposal, supra 

footnote 99. 

176See proposed Instruction 1(d)(x) of Item 

27(b)(7)(i)(E) of Form N–1A; proposed Instruction 

1(d)(x) of Item 24.4.g.(2)(B) of Form N–2. As with 

Scopes 1 and 2 emissions information, the proposal 

would also require funds to use Scope 3 emissions 

that are reported by a portfolio company in the 

company’s most recently filed regulatory report, if 

available. In the absence of reported Scope 3 

emissions data from a portfolio company in a 

regulatory report, the fund would be required to use 

Scope 3 emissions information that is otherwise 

publicly provided by the portfolio company, such 

as a publicly available sustainability report 

published by the company, if available. See supra 

footnotes 166 and 164 and accompanying text. 

177Funds would not be required to disclose their 

financed Scope 3 emissions using the WACI 

methodology. 

178See the PCAF Standard, supra footnote 136 at 

n.40 (noting that double counting occurs between 

the different Scopes of emissions from loans and 

investments when a fund invests in portfolio 

companies that are in the same value chain because 

the Scope 1 emissions of one company can be the 

upstream Scope 2 or 3 emissions of its customer). 

The brief explanation also would be 

complemented by additional, more 

granular information about the fund’s 

process for calculating and estimating 

its portfolio’s GHG emissions in order to 

facilitate investors’ decision making.173

Specifically, we are proposing to require 

a fund to provide additional information 

on Form N–CSR regarding any 

assumptions and methodologies the 

fund applied in calculating the 

portfolio’s GHG emissions, and any 

limitations associated with the fund’s 

methodologies and assumptions, as well 

as explanations of any good faith 

estimates of GHG emissions the fund 

was required to make.174

While these additional disclosures 

provide important contextual 

information to investors and other 

industry participants regarding the 

fund’s process for calculating GHG 

metrics, this information can be 

technical and complex. If we were to 

require funds to include this 

information in the annual report, it 

could make the report substantially 

longer and more difficult to understand. 

Therefore, we are proposing a layered 

approach to this disclosure, requiring a 

fund to disclose GHG metrics data in the 

annual report along with a brief 

summary of the sources of the data and 

the amount of estimated GHG emissions 

used, while providing more detailed 

information regarding the fund’s process 

and methodology for calculating and 

estimating GHG metrics on Form N–CSR 

for investors and other industry 

participants who wish to access this 

additional information.175

In addition to the above metrics, an 

environmentally focused fund would 

also be required to disclose the Scope 3 

emissions of its portfolio companies, to 

the extent that Scope 3 emissions data 

is reported by the fund’s portfolio 

companies.176 Scope 3 emissions would 

be disclosed separately for each 

industry sector in which the fund 

invests, and would be calculated using 

the carbon footprint methodology 

discussed above.177 We believe that 

presenting the Scope 3 emissions 

separately and not combined with the 

fund’s financed Scope 1 and 2 

emissions would alleviate some of the 

concerns related to the possibility of 

double counting emissions when adding 

Scope 3 emissions to a fund’s financed 

Scope 1 and 2 emissions.178

Additionally, we recognize that Scope 3 

emissions typically result from the 

activities of third parties in a portfolio 

company’s value chain, making it more 

difficult for a fund to estimate the Scope 

3 emissions associated with its portfolio 

companies as compared to Scope 1 and 

2 emissions. Therefore, funds would not 

be required to estimate the Scope 3 

emissions of their portfolio companies 

under the proposal. 

In addition, because financed Scope 3 

emissions would already be broken out 

by sector, providing two metrics for 

each sector (i.e., one WACI and one 

carbon footprint metric for each sector) 

could result in an amount of GHGrelated disclosure that may be confusing 

to investors. We believe that carbon 

footprint is an effective measure for this 

purpose because it is a relatively simple 

measure, depicting the scale of the 

fund’s financed emissions, normalized 

by the size of the fund. 

We request comment on all aspects of 

the proposed amendments to fund 

annual reports and related disclosure in 

proposed Item 7 of Form N–CSR 

requiring GHG emissions disclosures for 

certain funds, including the following 

items. 

87. Should we, as proposed, require 

environmentally focused funds to 

disclose their GHG emissions? Would 

such disclosure help investors 

interested in investing in such funds 

select a fund that is appropriate for 

them? To what extent would requiring 

GHG metrics reporting help prevent 

greenwashing? 

88. Should we, as proposed, limit the 

GHG emissions reporting requirements 

to environmentally focused funds that 

do not affirmatively state that they do 

not consider GHG emissions of the 

issuers in which they invest as part of 

their ESG strategy? Should the GHG 

emissions reporting requirement be 

limited to fund strategies where the 

fund’s adviser considers GHG emissions 

information in executing the fund’s 

strategy? If so, would this approach 

achieve this goal? Are there other 

environmentally focused funds that 

should not be subject to the GHG 

emissions reporting requirements? 

Alternatively, should we propose 

modified or different GHG emissions 

reporting requirements for certain 

environmentally focused funds, such as 

funds that focus on investing in carbon 

capture technology? 

89. Do commenters agree that, with 

respect to BDCs that are 

environmentally focused funds, the 

GHG emission disclosure we are 

proposing in this release would 

complement the GHG disclosure 

proposed in the Climate Disclosure 

Proposing Release if both proposals 

were adopted? Conversely, should a 

BDC only be required to disclose the 

GHG emissions disclosure proposed in 

this release or only provide the 

disclosure proposed in the Climate 

Disclosure Proposing Release? 

90. Are there any potential 

unintended effects in requiring GHG 

emissions reporting? For example, are 

there investments that might report high 

emissions that could nonetheless help 

the fund achieve an investment 

objective related to the environment 

generally or climate change specifically, 

such as the GHG emissions generated 

from investments in the construction of 

windmills or electric cars? If so, would 

our proposed approach to limit GHG 

reporting to environmentally focused 

funds that do not affirmatively state that 

they do not consider GHG emissions of 

the issuers in which they invest help 

alleviate potential unintended effects of 

the GHG emissions reporting 

requirement? Rather than our proposed 

approach to limit the scope of funds 

subject to the GHG reporting 

requirement, should we instead require 

these funds to report alternative metrics 

that they consider in making investment 

decisions? 

91. Are there alternative metrics that 

funds focused on climate change 

consider in making investment 

decisions that we should require funds 

to report alongside or instead of the 

proposed GHG emission metrics? 


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Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36683 

179See Item 27(d)(2) of Form N–1A; see also 

Instruction 6(a) to Item 24 of Form N–2. 

92. In addition to requiring 

environmentally focused funds to 

disclose their GHG emissions, should 

we also require Integration Funds that 

state that they use GHG metrics in their 

integration or investment process, or 

Integration Funds that consider 

environmental factors generally, to 

disclose their GHG emissions? 

Alternatively, should we require all ESG 

funds, regardless of their focus on E, S 

or G, to disclose these metrics? 

Alternatively, should we require all 

funds, regardless of whether they are 

ESG funds, to disclose their GHG 

emissions? Are investors in funds that 

do not involve ESG factors nonetheless 

interested in the GHG emissions 

associated with the funds’ portfolios? 

93. Should we, as proposed, require 

funds to disclose the Scope 1 and Scope 

2 GHG emissions of their portfolio 

holdings using the carbon footprint and 

the WACI metrics? Do these metrics 

provide investors with useful 

information about the emissions 

associated with the fund’s portfolio? Are 

we correct in our understanding that 

investors would benefit from seeing 

both metrics to appreciate the climate 

impact of the fund’s investment 

decision as well as the fund’s exposure 

to transition risks? Alternatively, should 

we require only one of these metrics to 

be disclosed? What are the costs 

associated with requiring the disclosure 

of a portfolio’s Scope 1 and Scope 2 

emissions? 

94. Should we require funds to 

disclose other metrics? Rather than 

requiring funds to disclose carbon 

footprint and WACI, should we allow 

funds to use any reasonable 

methodology to calculate the GHG 

emissions associated with their 

portfolios and provide an explanation of 

their methodology? 

95. The carbon footprint and WACI 

metrics we are proposing are generally 

consistent with the metrics 

recommended by the PCAF Standard 

and the TCFD. Are there alternative 

calculation methodologies that we 

should require funds to use? For 

example, should we require funds to 

disclose the carbon emissions of the 

portfolio as a whole? For example, 

would investors benefit from seeing the 

fund’s carbon footprint not normalized 

for the size of the fund, to focus 

investors on the absolute level of GHG 

emissions associated with fund 

portfolios? 

96. Should we, as proposed, require 

funds to calculate their GHG emissions 

without including a provision 

permitting a fund to give effect to any 

purchased or generated carbon offsets? 

Alternatively, should we allow funds to 

provide GHG emissions net of such 

carbon offsets in lieu of an absolute 

presentation? 

97. Should we, as proposed, require 

funds to combine the Scope 1 and Scope 

2 emissions of their portfolios? 

Alternatively, should we require funds 

to report separately their portfolio Scope 

1 emissions from their portfolio Scope 

2 emissions? 

98. Are the proposed methods of 

calculating the carbon footprint and 

WACI metrics described above 

appropriate? Is there a better 

methodology for calculating a portfolio’s 

carbon footprint and WACI? For 

example, should we require funds to use 

total assets, rather than net asset value 

as proposed, in the calculation of carbon 

footprint and WACI? Should we require 

funds to express the portfolio emissions 

in dollars, rather than millions of 

dollars as proposed? 

99. Is the proposed approach to 

calculating enterprise value 

appropriate? Is there a better way to 

calculate enterprise value? 

100. If an environmentally focused 

fund invests in a portfolio company 

with a holding company structure, 

should the fund’s carbon footprint and 

WACI include the consolidated 

emissions of all subsidiaries owned by 

that holding company as Scope 2 

emissions, or should the calculations 

include solely the Scope 1 and 2 

emissions of the holding company? Are 

there alternative approaches to account 

for the holding company’s control over 

the emissions of its subsidiaries? 

101. Should we, as proposed, require 

the disclosure of portfolio companies’ 

Scope 3 emissions to the extent they are 

publicly reported by a portfolio 

company? Should we require funds to 

estimate these Scope 3 emissions when 

they are not reported? How burdensome 

would this be for funds? Would the 

estimated Scope 3 emissions be reliable? 

102. Should we, as proposed, require 

the calculation of portfolio companies’ 

Scope 3 emissions using the carbon 

footprint methodology only? 

Alternatively, should we require funds 

to disclose these Scope 3 emissions 

using both the carbon footprint and the 

WACI metrics? Are there other metrics 

that we should require for portfolio 

company Scope 3 emissions? 

103. Should we, as proposed, require 

the disclosure of portfolio companies’ 

Scope 3 emissions separately for each 

industry sector in which the fund 

invests? Is ‘‘industry sector’’ the 

appropriate category for the portfolio 

companies’ Scope 3 emissions? 

Alternatively, should we permit or 

require funds to use the same 

reasonably identifiable category for 

portfolio company Scope 3 emissions 

that they use to depict the portfolio 

holdings of the fund in the graphical 

representation of holdings section of the 

annual report?179 Alternatively, should 

we require the disclosure of a single 

metric for all these portfolio companies’ 

Scope 3 emissions? 

104. Should we, as proposed, require 

the calculation of Scope 1 and Scope 2 

emissions separately from Scope 3 

emissions? Alternatively, should we 

require funds to disclose all three 

emission types as a single metric? 

105. Are the proposed instructions 

related to the calculation of GHG metric 

methodologies clear, easily 

understandable, and appropriate? 

106. Are our proposed definitions of 

CO2e, GWP, GHG, GHG emissions, and 

Scopes 1, 2 and 3 appropriate? Are we 

correct in our understanding that these 

defined terms are generally accepted as 

the appropriate basis for measuring 

emissions, including financed emissions 

of portfolios? Are they consistent with 

the GHG Protocol, the TCFD and PCAF 

Standards? Are there alternative defined 

terms that we should adopt? Rather than 

defining these terms, should we instead 

allow funds to use their own definitions 

and provide an explanation of such 

terms? 

107. Is our definition of ‘‘portfolio 

company,’’ which includes the types of 

fund investments that should be 

included in the GHG metric 

calculations, appropriate? Should we, as 

proposed, include a fund’s investments 

in other funds and private funds in the 

definition of the types of fund 

investments that should be included in 

the GHG emissions calculations? What 

are the costs associated with such a 

requirement? 

108. Should we prescribe how the 

fund must determine the GHG 

emissions associated with its 

investments in a fund or private fund? 

If the underlying fund or private fund 

discloses the GHG emissions of its 

portfolio, should funds be allowed to 

rely on the underlying fund’s disclosed 

GHG emissions data as proposed? 

Alternatively, should the fund be 

required to look through its investment 

in the underlying fund regardless of 

whether such underlying fund discloses 

its GHG emissions? 

109. Should our definition of 

‘‘portfolio company’’ exclude 

investments in money market funds, as 

proposed? To what extent do money 

market funds’ investments finance 

emissions? Should this exclusion be 

limited to government money market 


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funds, as defined in rule 2a–7, which 

invest 99.5 percent or more of their total 

assets in cash, government securities, 

and/or repurchase agreements that are 

collateralized fully? 

110. Are there asset classes or 

investments that are not included in the 

proposed definition of a ‘‘portfolio 

company’’ that we should include in the 

definition? For example, should a 

‘‘portfolio company’’ include sovereign 

bonds, cash, foreign currencies, and/or 

interest rate swaps and other derivatives 

that do not reference a ‘‘portfolio 

company’’? Would it be practical to 

include these holdings and how would 

funds calculate the financed emissions 

attributable to them? Are there other 

types of fund investments that we 

should include or exclude? Should 

funds be required to separately disclose 

the percentage of the fund’s investments 

that were not included in the GHG 

emissions calculations? If so, where 

should such disclosure appear? 

111. Are there particular types of 

investments that should be treated 

differently for purposes of a fund’s 

carbon footprint or WACI? For example, 

should fixed-income securities or 

securities sold short be treated 

differently? When a bond is issued for 

a specific purpose or project, should the 

GHG emissions associated with the 

bond be limited to those associated with 

the purpose or project? Is sufficient 

information available for such an 

attribution? When a security is sold 

short, should the GHG emissions 

associated with the security be 

subtracted from a fund’s WACI or 

carbon footprint? To what extent would 

special instructions for particular types 

of investments such as special-purpose 

bonds or securities sold short increase 

the complexity of the calculation and 

attendant costs? 

112. Is our proposed approach to the 

calculation of GHG metrics related to 

derivative instruments appropriate? To 

what extent do funds that would be 

subject to this disclosure requirement 

enter into derivatives? Is the proposed 

treatment of derivatives appropriate and 

clear as applied to these derivatives? 

Alternatively, should we exclude 

derivatives instruments from the 

definition of a ‘‘portfolio company’’ or 

‘‘portfolio holding’’ so that funds would 

be not be required to attribute GHG 

emission to these investments? 

113. Should we, as proposed, require 

funds to obtain all the information 

necessary to calculate a portfolio 

company’s enterprise value from their 

most recent regulatory report? Would 

this approach ease the burdens and 

costs associated with complying with 

the proposal? Would it enhance the 

comparability of the information across 

funds with similar investments? 

Alternatively, should we require funds 

to obtain more recent data, if such 

information is voluntarily provided by 

the portfolio company? 

114. For non-U.S. portfolio 

companies, should we require funds to 

obtain all the information necessary to 

calculate a portfolio company’s 

enterprise value from non-U.S. 

regulatory reports, if available? If so, 

would funds experience challenges in 

identifying relevant non-U.S. regulatory 

reports and determining if they contain 

information that can be used to 

calculate the fund’s WACI or carbon 

footprint? 

115. For fund investments in private 

companies or other portfolio companies 

that do not file regulatory reports, 

should we require funds to obtain all 

the information necessary to calculate 

private company’s enterprise value data 

related to those holdings directly from 

the companies, as proposed? What are 

the burdens and costs associated with 

such an approach? Would such 

information be consistent and reliable 

across portfolio companies? If this 

information is not available, should we 

require funds to estimate the data 

necessary to calculate the company’s 

enterprise value? 

116. Should we, as proposed, require 

all necessary data related to the fund to 

be provided as of the fund’s most 

recently completed fiscal year and all 

necessary data related to the portfolio 

company as of the date of the relevant 

regulatory report filed by the portfolio 

company containing the necessary 

information? Would the inconsistency 

in the ‘‘as of’’ dates of the data used in 

the calculation of GHG metrics affect the 

quality of the fund’s GHG emissions 

disclosure? 

117. If a portfolio company reports its 

total revenue in currency other than 

U.S. dollars, should we, as proposed, 

require a fund to convert the reported 

revenue to U.S. dollars using the 

exchange rate as of the date of the 

portfolio company’s regulatory report? 

What are the costs associated with such 

a requirement? Should we instead allow 

a fund to use the exchange rate as of the 

fund’s most recently completed fiscal 

year or, alternatively, the current 

exchange rate? 

118. If a portfolio company reports 

zero revenue in a given year, how 

should funds represent the carbon 

emissions for such portfolio companies 

in the fund’s calculation of its WACI? 

For example, should funds be required 

to use ‘‘1’’ as the revenue for a portfolio 

company with zero revenue when 

calculating the WACI to avoid 

incorrectly reporting zero emissions for 

such a portfolio company? 

Alternatively, should funds exclude 

portfolio companies that report zero 

revenue from the fund’s calculation of 

its WACI and disclose the percentage of 

the fund’s NAV represented by these 

portfolio companies? 

119. Should we, as proposed, include 

a data hierarchy for the sources of GHG 

emissions information? Is the specific 

proposed hierarchy—i.e., regulatory 

reports, followed by other public 

reports, and then good faith estimates of 

emissions—appropriate? Are there any 

sources of data we should explicitly 

include or remove? If we were to add 

sources of data, where in the hierarchy 

should they be placed? For example, 

should we require funds to use data 

from portfolio companies filed with 

non-U.S. securities or banking 

regulators if available, instead of other 

publicly reported data? Should we, 

instead of establishing a hierarchy, 

require funds to form a reasonable 

estimate of each portfolio company’s 

GHG emissions in all cases and permit 

funds to use whatever data they believe 

in good faith to be the most reliable? 

120. Should we, as proposed, require 

that a fund use the Scope 1, Scope 2, 

and Scope 3 emissions of a portfolio 

company from the company’s most 

recent regulatory report if the report 

includes that information? Would this 

approach ease the burdens and costs 

associated with complying with the 

proposal to the extent portfolio 

companies include the relevant GHG 

information in their regulatory reports? 

Would it enhance the comparability of 

the information across funds with 

similar investments? Are we correct in 

our understanding that data provided in 

a regulatory report filed with the 

Commission is always more reliable 

than information disclosed on portfolio 

company website and GHG emissions 

estimates generated by an ESG provider? 

Alternatively, should we require funds 

to seek to obtain more recent data from 

the portfolio company? What are the 

costs and burdens associated with such 

an alternative approach? 

121. For portfolio companies that do 

not report or otherwise provide their 

Scope 1 and Scope 2 emissions (‘‘nonreporting portfolio companies’’), should 

we, as proposed, require funds to use a 

good faith estimate of the portfolio 

companies’ Scope 1 and Scope 2 

emissions? Should we provide 

additional guidance on performing these 

calculations? 

122. How burdensome would it be to 

estimate Scope 1 and Scope 2 emissions 

and how reliable would the estimates 

be? Are there ways to ease such burdens 


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180The requirement to submit this information in 

Inline XBRL would apply to open- and registered 

closed-end funds and BDCs, and to UITs that file 

with the Commission on Forms N–1A [17 CFR 

274.11A], N–2 [17 CFR 274.11a-1], or S–6 [17 CFR 

239.16] and to annual shareholder reports filed on 

Form N–CSR [17 CFR 274.128] and annual reports 

filed on Form 10–K [17 CFR 249.310]. This tagging 

requirement would be implemented by including 

cross-references to rule 405 of Regulation S–T in 

each fund registration form (and, as applicable, 

updating the cross-references to rule 405 in those 

registration forms that currently require certain 

information to be tagged in Inline XBRL—that is, 

Form N–1A and Form N–2); revising rule 405(b) of 

Regulation S–T to include the tagging of the ESGrelated disclosures. Pursuant to 17 CFR 232.301 

(‘‘rule 301 of Regulation S–T’’), the EDGAR Filer 

Manual is incorporated into the Commission’s 

rules. In conjunction with the EDGAR Filer Manual, 

Regulation S–T governs the electronic submission 

of documents filed with the Commission. Rule 405 

of Regulation S–T specifically governs the scope 

and manner of disclosure tagging for operating 

companies and investment companies, including 

the requirement in rule 405(a)(3) to use Inline XBRL 

as the specific structured data to use for tagging 

disclosures. 

181The Commission has an open source Inline 

XBRL Viewer that allows the user to make an Inline 

XBRL data human-readable and allows filers to 

more readily filter and identify errors. Anyone with 

a recent standard internet browser can view any 

Inline XBRL filing on the Commission’s Electronic 

Data Gathering, Analysis, and Retrieval (EDGAR) 

system at no cost. More information about the 

Commission’s Inline XBRL Viewer is available at 

https://www.sec.gov/structureddata/osd-inlinexbrl.html. In addition, our proposed amendments to 

17 CFR 232.11 (‘‘rule 11 of Regulation S–T’’), which 

would include Forms N–8B–2 and S–6 in the 

definition of an ‘‘Interactive Data File,’’ mean that 

an UIT that files on those forms would, as 

registrants that file on Forms N–1A, N–3, N–4, and 

N–6, automatically be suspended from the ability to 

file a post-effective amendment for immediate 

effectiveness if the UIT fails to submit any 

Interactive Data File required by the form on which 

it files its post-effective amendment. See proposed 

amendments to 17 CFR 230.485 (‘‘rule 485’’) and 17 

CFR 230.497(c) and (e) (‘‘rule 497(c) and (e)’’). We 

also are proposing to amend these rules to simplify 

the current structured data rule requirements 

prescribed by those rules. Id. 

182See proposed 17 CFR 232.405(b)(2)(i) and 

(b)(3)(iii); see also proposed amendments to 17 CFR 

232.11 (amending the term ‘‘related official filing,’’ 

in part, to include references to Form N–8B–2 [17 

CFR 274.12] and Form S–6 [17 CFR 239.16]). 

183Many funds are already required to tag certain 

registration statement disclosure items using Inline 

XBRL; however, UITs that register on Form N–8B– 

2 and file post-effective amendments on Form S– 

6 are not currently subject to any tagging 

requirements. The costs of these requirements for 

Continued 

that we should adopt? For example, 

should we provide a safe harbor from 

liability for fund disclosure of GHG 

emissions data because the disclosure 

will be based on information provided 

by third parties? If so, should any safe 

harbor apply to all of the GHG 

disclosures we are proposing for funds, 

or should it be more limited, such as 

only applying to the Scope 3 emissions 

of the fund’s portfolio companies, and/ 

or a fund’s good faith estimates of Scope 

1 and Scope 2 financed emissions? How 

should any safe harbor operate? Should 

the safe harbor provide that the 

disclosure will not be a fraudulent 

statement if certain conditions are met? 

What conditions would be appropriate? 

For example, should a safe harbor 

require a fund to perform a certain level 

of diligence to take advantage of the safe 

harbor, to ensure that the fund does not 

receive the benefit of the safe harbor 

without appropriate diligence? How 

should any diligence requirement or 

required state of mind be worded? For 

example, should the safe harbor be 

available only if the fund’s disclosure of 

GHG emissions have a reasonable basis 

and were disclosed in good faith? How 

should we define a ‘‘fraudulent 

statement’’ for purposes of such a safe 

harbor, and are there are any antifraud 

provisions in the Securities Act, 

Exchange Act, Investment Company 

Act, or any other provisions of the 

Federal securities laws, to which the 

safe harbor should not apply? 

123. If a portfolio company does not 

provide GHG emissions data in a 

regulatory report, but does provide it in 

other publicly available documents or 

on its website, should we require a fund 

to use this information, as proposed? 

Alternatively, should we allow a fund to 

form its own good faith estimate even 

when a portfolio company publicly 

provides its GHG emissions data? 

Would it be difficult for a fund to 

determine with high confidence that a 

given portfolio company does not 

publicly report GHG information 

outside of the company’s regulatory 

reports? 

124. Rather than requiring a fund to 

estimate a non-reporting company’s 

GHG emissions, should we exclude nonreporting companies from a fund’s GHG 

emission calculations? If so, should we 

also limit a fund’s ability to invest in 

non-reporting companies? For example, 

should we limit a fund’s ability to invest 

in non-reporting companies to 20% of a 

fund’s net asset value? 

125. Should we, as proposed, require 

a fund to briefly discuss in the MDFP or 

MD&A how the fund estimates any GHG 

emissions, including the sources of data 

for determining such estimates, and the 

percentage of the fund’s aggregated GHG 

emissions for which the fund used 

estimates rather than reported 

emissions? Is it clear to funds what this 

description should include? Is there any 

additional guidance that we should 

provide? For example, if a fund bases its 

estimate on information provided by an 

ESG service provider, is there any 

additional information that we should 

explicitly require regarding these 

service providers? Would this 

additional information be helpful to 

investors in understanding how a fund 

calculates its GHG emissions? 

126. Should we, as proposed, require 

a fund to narratively explain on Form 

N–CSR the methodologies and 

assumptions it applied when calculating 

any good faith estimates of a portfolio 

company’s GHG emissions? Is it clear to 

funds what this description should 

include? For funds that base their 

estimates on information provided by 

ESG service providers, would the funds 

be able to describe the underlying 

methodologies and assumptions used by 

these service providers? 

127. Is our layered approach to the 

disclosure of GHG emissions 

appropriate? Should we require a fund 

to state, in the shareholder report, that 

additional information regarding the 

underlying assumptions and 

methodologies is available on Form N– 

CSR? Would investors be sufficiently 

familiar with Form N–CSR to 

understand the cross reference? Would 

funds be able to provide a hyperlink or 

other more specific reference even 

though the fund may not have filed its 

report on Form N–CSR at the time it 

delivers the shareholder report? 

Alternatively, should we require a fund 

to summarize briefly the underlying 

methodologies and assumptions, 

including any limitations of the 

methodology, in the shareholder report? 

4. Inline XBRL Data Tagging 

We are proposing to require that 

funds submit all proposed ESG-related 

registration statement and fund annual 

report disclosure filed with the 

Commission in a structured, machinereadable data language.180 Specifically, 

we would require such funds to submit 

the specified information to the 

Commission in Inline XBRL, which 

allows investors and other market 

participants, such as data aggregators 

(i.e., entities that, in general, collect, 

package, and resell data) to use 

automated analytical tools to extract the 

information sought wherever it may be 

located within a filing.181

To implement the proposed 

structured data requirements, we 

propose to amend 17 CFR 232.405 

(‘‘rule 405 of Regulation S–T’’) to 

reference the ESG-specific form 

provisions.182 The information required 

to be tagged in Inline XBRL would have 

to satisfy the requirements of rule 405 

of Regulation S–T in accordance with 

the EDGAR Filer Manual. 

Background 

All open- and registered closed-end 

funds and BDCs are currently subject to 

Inline XBRL structured data 

requirements.183 In 2009, the 


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funds that are currently subject to tagging 

requirements and those that newly would be 

required to tag certain disclosure items are 

discussed in the Economic Analysis. See section 

III.C.2 infra. 

184 Interactive Data to Improve Financial 

Reporting, Release No. 33–9002 (Jan. 30, 2009) [74 

FR 6776 (Feb. 10, 2009)] as corrected by Release No. 

33–9002A (Apr. 1, 2009) [74 FR 15666 (Apr. 7, 

2009)]; Interactive Data for Mutual Fund Risk/ 

Return Summary, Investment Company Act Release 

No. 28617 (Feb. 11, 2009) [74 FR 7748] (Feb. 19, 

2009)]) (‘‘2009 Risk/Return Summary Adopting 

Release’’). 

185 Inline XBRL Filing of Tagged Data, Investment 

Company Act Rel. No. 33139 (June 28, 2018) [83 FR 

40846, 40847 (Aug. 16, 2018)] (‘‘Inline XBRL 

Adopting Release’’). Inline XBRL allows filers to 

embed XBRL data directly into an HTML document, 

eliminating the need to tag a copy of the 

information in a separate XBRL exhibit. Id. at 

40851. 

186Securities Offering Reform for Closed-End 

Investment Companies, Investment Company Act 

Rel. No. 33814 (Apr. 8, 2020) [85 FR 33290 (June 

1, 2020) at 33318] (‘‘Closed-End Fund Offering 

Reform Adopting Release’’) (requiring BDCs to 

submit financial statement information, and 

registered closed-end funds and BDCs to tag Form 

N–2 cover page information and specified 

prospectus disclosures using Inline XBRL). In 2020, 

the Commission also adopted Inline XBRL 

requirements for separate accounts registered as 

management investment companies. See Updated 

Disclosure Requirements and Summary Prospectus 

for Variable Annuity and Variable Life Insurance 

Contracts, Investment Company Act Rel. No. 33814 

(Mar. 11, 2020) [85 FR 25964 (May 1, 2020)] 

(‘‘Variable Contract Summary Prospectus Adopting 

Release’’) (requiring variable contracts to use Inline 

XBRL to submit certain required prospectus 

disclosures). Most recently, the Commission 

adopted amendments that revise most fee-bearing 

forms, schedules, statements, and related rules to 

require all fee calculation information to be in a 

filing fee exhibit that must be tagged in Inline 

XBRL. See Filing Fee Disclosure and Payment 

Methods Modernization, Investment Company Act 

Rel. No. 34396 (Oct. 13, 2021) [86 FR 70166 (Dec. 

9, 2021)] (‘‘Filing Fee Adopting Release’’). 

187Registered investment companies (other than 

money market funds and small business investment 

companies) must report information about their 

monthly portfolio holdings to the Commission in a 

structured data format on a quarterly basis, 60 days 

after quarter end, on Form N–PORT, and the 

holdings for the last month of each quarter is made 

publicly available. See Investment Company 

Reporting Modernization, Investment Company Act 

Rel. No. 32314 (Oct. 13, 2016) [81 FR 81870 (Nov. 

18, 2016)] (‘‘Reporting Modernization Release’’); see 

also Amendments to the Timing Requirements for 

Filing Reports on Form N–PORT, Investment 

Company Act Release No. 33384 (Feb. 27, 2019) [84 

FR 7980 (Mar. 6, 2019)] (‘‘N–PORT Modification 

Release’’). Money market funds must report 

portfolio information on Form N–MFP. See Money 

Market Fund Reform, Investment Company Act 

Release No. 29132 (Feb. 23, 2010) [75 FR 10060 

(Mar. 4, 2010)]. See also infra at 0, discussing 

information we are proposing to require in 

regulatory census reporting forms using a structured 

data language. Mutual fund prospectus risk/return 

summary data sets are available at https://

www.sec.gov/dera/data/mutual-fund-prospectusrisk-return-summary-data-sets. 

Commission adopted rules requiring 

operating company financial statements 

and mutual fund risk/return summaries 

to be submitted in XBRL entirely within 

an exhibit to a filing.184 In 2018, the 

Commission adopted modifications to 

these requirements by requiring issuers 

to use Inline XBRL to reduce the time 

and effort associated with preparing 

XBRL filings and improve the quality 

and usability of XBRL data for 

investors.185 In 2020, the Commission 

adopted new Inline XBRL requirements 

for registered closed-end funds and 

BDCs that will be effective no later than 

February 2023.186 The Commission has 

also adopted requirements for most 

registered investment companies to file 

monthly reporting of portfolio securities 

on a quarterly basis, in a structured data 

language.187 Much of this information is 

publicly available as structured data on 

the Commission’s website at 

www.sec.gov. 

Discussion 

We believe that requiring funds to tag 

their ESG disclosures using Inline XBRL 

would benefit investors, other market 

participants, and the Commission by 

making the disclosures more readily 

available and easily accessible for 

aggregation, comparison, filtering, and 

other analysis, as compared to requiring 

a non-machine readable data language 

such as ASCII or HTML. The proposed 

tagging requirements using Inline XBRL 

would enable automated extraction and 

analysis of data regarding the ESG 

disclosures for investors and other 

market participants who seek to access 

information about funds that provide 

ESG disclosures, both directly and 

through information intermediaries 

such as data aggregators and financial 

analysts. Providing a standardized, 

structured data framework could 

facilitate more efficient investor largescale analysis and comparisons across 

funds and across time periods. An 

Inline XBRL requirement would 

facilitate other analytical benefits, such 

as more easily extracting/searching ESGrelated disclosures (rather than having 

to manually run searches for those 

disclosures through entire documents), 

automatically compare/redline these 

disclosures against prior periods, and 

perform targeted assessments of specific 

narrative disclosures rather than the 

entire unstructured document. For 

investors and other market participants, 

requiring funds to tag their ESG 

disclosures in a structured data 

language would both increase the 

availability, and reduce the cost, of 

collecting and analyzing such 

information, potentially increasing 

transparency and mitigating the 

potential informational costs as 

compared to unstructured disclosure. 

Further, for filers, Inline XBRL can 

enhance the efficiency of review, yield 

time and costs savings, and potentially 

enhance the quality of data compared to 

other machine-readable standards, as 

certain errors would be easier to correct 

because the data is also human readable. 

This aspect of our proposed 

amendments is in keeping with the 

Commission’s ongoing efforts to 

implement reporting and disclosure 

reforms that take advantage of the 

benefits of advanced technology to 

modernize the fund reporting regime 

and to, among other things, help 

investors and other market participants 

better assess different funds. 

We request comment on all aspects of 

our proposed Inline XBRL requirements, 

including the following items: 

128. Should any of the proposed 

disclosure items be excepted from the 

proposed Inline XBRL requirement? 

What would be the effects on data 

quality and usability to investors and 

other data users with excepting such 

disclosure items from the requirement 

to submit data in Inline XBRL? 

129. Should we require or permit 

funds to use a different structured data 

language to tag the proposed 

disclosures? If so, what structured data 

language should we require or permit, 

and why? 

130. What costs or other burdens (e.g., 

related to personnel, systems, 

operations, compliance, etc.) would the 

proposed Inline XBRL requirements 

impose on funds? Please provide 

quantitative estimates to the extent 

available. 

131. How long is it likely to take for 

vendors and filers to develop solutions 

for tagging the disclosure required by 

our proposed amendments? 

132. Are any other amendments 

necessary or appropriate to require the 

submission of the proposed information 

required to be submitted in Inline 

XBRL? What changes should we make 

and why? 

133. To what extent do investors and 

other market participants find 

information that is available in Inline 

XBRL useful for analytical purposes? Is 

information that is narrative, rather than 

numerical, useful content for analytical 

tools? 

134. Are there any funds, such as 

smaller funds, that we should except 

from the Inline XBRL requirements? 

Should we, as proposed, apply the 

Inline XBRL requirements to UITs? 

B. Adviser Brochure (Form ADV Part 

2A) 

Given the rising significance investors 

place on the consideration of ESG 

factors when making investment 

decisions, we also are proposing 

amendments to Form ADV Part 2A to 

include information about registered 


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188See 17 CFR 275.204–3 (‘‘Advisers Act rule 

204–3’’) and Amendments to Form ADV, 

Investment Advisers Act Release No. 3060 (July 28, 

2010) [75 FR 49233 (Aug. 12, 2010)], available at 

https://www.sec.gov/rules/final/2010/ia-3060.pdf 

(‘‘Brochure Adopting Release’’). See also 

Commission Interpretation Regarding Standard of 

Conduct for Investment Advisers, Release No. IA– 

5248, at 6–8 (June 5, 2019) [84 FR 33669 (July 12, 

2019)], available at https://www.sec.gov/rules/ 

interp/2019/ia-5248.pdf (‘‘Fiduciary 

Interpretation’’). 

189See Brochure Adopting Release, supra 

footnote 188, at text accompanying nn.8 and 9. 190However, if an adviser offers substantially 

different types of advisory services, the adviser may 

opt to prepare separate brochures so long as each 

client receives all applicable information about 

services and fees. See Instructions for Part 2A of 

Form ADV: Preparing Your Firm Brochure, 

Instruction 9. 

191See, e.g., Form ADV Part 2A Item 10.C. 192For purposes of this release, we refer to 

significant investment strategies or methods of 

analysis as ‘‘significant strategies.’’ 193See supra Section II.A.1 (‘‘Proposed 

Prospectus ESG Disclosure Enhancements’’). 

194See Proposed Form ADV Part 2A sub-Item 8.D. 

The differences between the proposed terms for 

funds and advisers reflect the structural differences 

between funds and advisers (e.g., that advisers to 

clients that are not registered investment companies 

provide investment advice that may or may not be 

discretionary). In addition, for example, the 

proposed definition of ‘‘ESG-Focused’’ for advisers 

would differ from the proposed definition for funds 

because the adviser definition would not 

specifically incorporate advisers with certain ESGrelated names or advertising materials. 

195We believe that clients seeking advisory 

services tailored to their ESG investing goals would 

refer to advisers’ disclosures under the brochure’s 

current Item 4, to assess whether and how an 

adviser tailors its advisory services to the 

individual needs of clients, and whether clients 

may impose restrictions on investing in certain 

securities or types of securities. 

196See infra footnote 223 and accompanying text. 

advisers’ ESG practices. Advisers 

registered with the Commission must 

deliver a brochure and one or more 

brochure supplements to each of their 

clients or prospective clients, which 

advisers may use to help them with 

their disclosure obligations as 

fiduciaries.188 The adviser brochure is 

designed to provide a narrative, plain 

English description of the adviser’s 

business, conflicts of interest, 

disciplinary history, and other 

important information to help clients 

make more informed decisions about 

whether to hire or retain that adviser.189

We are proposing to require ESG-related 

disclosures from registered investment 

advisers that consider ESG factors as 

part of their advisory businesses. 

We designed these proposed 

requirements to provide clients and 

prospective clients with useful and 

comparable information to help them 

better evaluate the ESG-related services 

of the growing number of advisers that 

offer them and the variety of ways 

advisers currently approach ESG 

investing. We believe that requiring 

advisers to disclose with specificity 

their ESG investing approach would 

help clients understand the investing 

approach the adviser uses, as well as 

compare the variety of emerging 

approaches, such as employment of an 

inclusionary or exclusionary screen, 

focus on a specific impact, or 

engagement with issuers to achieve ESG 

goals. While the proposed requirements 

share several elements with the 

requirements we are proposing for 

registered funds that consider ESG 

factors, they differ in key respects. First, 

the proposed requirements for advisers 

reflect that, unlike a fund prospectus, 

which describes a single portfolio 

strategy, an adviser’s brochure typically 

reflects the entire business of the 

adviser, which may encompass multiple 

advisory services, investment strategies, 

and methods of analysis.190

Additionally, the proposed 

requirements reflect that the brochure 

discloses key aspects of the advisory 

relationship, including certain 

relationships with related persons.191

We believe our proposed additions to 

the brochure would help clients and 

prospective clients better understand 

how these advisers consider ESG factors 

when formulating investment advice 

and providing investment 

recommendations, and any 

corresponding risks or conflicts of 

interest. A client may use this 

disclosure to select an adviser and 

evaluate the adviser’s business practices 

and conflicts on an ongoing basis. As a 

result, the disclosure that clients and 

prospective clients receive is critical to 

their ability to make an informed 

decision about whether to engage an 

adviser and, having engaged the adviser, 

to manage that relationship. We believe 

these amendments would overall 

improve the ability of clients and 

prospective clients to evaluate firms 

offering advisory services that consider 

ESG factors, help clients make more 

informed choices regarding ESG 

investing, and better compare advisers 

and investment strategies. 

(a) Item 8: Methods of Analysis, 

Investment Strategies and Risk of Loss 

Item 8 of the brochure requires 

advisers to describe the methods of 

analysis and investment strategies used 

when formulating investment advice or 

managing assets, and to provide a 

detailed explanation of any material, 

significant, or unusual risks presented 

by each of the adviser’s significant 

investment strategies or methods of 

analysis.192 Further, if an adviser 

primarily recommends a particular type 

of security, the adviser must explain any 

material, significant, or unusual risks of 

investing in that security. We are 

proposing to add a new sub-Item 8.D, 

which would require an adviser to 

provide a description of the ESG factor 

or factors it considers for each 

significant investment strategy or 

method of analysis for which the 

adviser considers any ESG factors. 

Similar to our proposal for registered 

funds, we are not proposing to define 

‘‘ESG’’ or similar terms.193 Instead, we 

are proposing to require advisers to 

provide a description of the ESG factor 

or factors they consider, and disclose to 

clients how they incorporate these 

factors when providing investment 

advice, including when recommending 

or selecting other investment advisers. 

However, we are proposing definitions 

for ESG integration, focused, and impact 

strategies, which are similar to the way 

we propose to define them for registered 

funds.194 We believe that proposed subItem 8.D, which would include the 

additional disclosures described below, 

would help clients and prospective 

clients, as well as other market 

participants, better understand how 

advisers consider ESG factors when 

implementing their significant 

investment strategies. More specifically, 

these disclosures would allow clients 

and prospective clients to compare the 

ways different advisers consider ESG 

factors in their significant investment 

strategies.195 We believe that as a result, 

clients and prospective clients would be 

better able to select an investment 

adviser that matches their expectations 

regarding ESG investing. 

As with our proposal for registered 

funds and for the reasons described 

above, we believe that for a client or 

prospective client to evaluate effectively 

the relevant ESG strategies offered by an 

adviser, an adviser must explain what it 

means when it states that it incorporates 

ESG factors in its investment 

recommendations, including describing 

the ESG factors. This proposed sub-item 

would require an explanation of 

whether and how the adviser 

incorporates a particular ESG factor (E, 

S, or G) and/or a combination of factors. 

In addition, similar to funds, the 

proposed disclosure would include an 

explanation of whether and how the 

adviser employs integration and/or ESGfocused strategies, and if ESG-focused, 

whether and how the adviser also 

employs ESG impact strategies. An 

adviser that considers different ESG 

factors for different strategies should 

include the proposed disclosures for 

each strategy.196

For example, an adviser pursuing an 

integration strategy may consider the 

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197Under our proposal, the term ‘‘management 

person’’ and ‘‘related person’’ would be defined as 

currently defined in the Form ADV glossary of 

Terms. 

198For a discussion of ESG providers, see supra 

text accompanying footnote 25. 

199Proposed Form ADV Part 2A, Item 17.A. As 

with the other ESG-related information, we are 

alongside other, non-ESG factors when 

making investment recommendations. 

In such a case, when explaining its 

integration strategy, our proposal would 

require the adviser to explain how it 

incorporates carbon emissions when 

making investment recommendations. 

This explanation would include that the 

adviser considers other, non-ESG factors 

alongside its consideration of carbon 

emissions, but that carbon emissions are 

generally no more significant than the 

other factors when providing 

investment advice, such that carbon 

emissions may not be determinative in 

deciding whether to recommend any 

particular investment. If an adviser 

employs an ESG-focused strategy 

because it focuses on one or more ESG 

factors by using them as a significant or 

main consideration in providing 

investment advice or in its engagement 

strategy with the companies in which its 

clients invest, it would describe those 

ESG factors. It would also describe how 

the adviser incorporates those factors 

when providing investment advice. To 

the extent an adviser employs an ESGfocused approach that is also considered 

ESG-impact because the adviser seeks to 

achieve a specific ESG impact or 

impacts for the significant strategy, our 

proposed brochure amendment would 

require additional disclosures. Such an 

adviser would provide an overview of 

the impact(s) the adviser is seeking to 

achieve, and how the adviser is seeking 

to achieve the impact(s). This would 

include how the adviser measures 

progress toward the stated impact, 

disclosing the key performance 

indicators the adviser analyzes, the time 

horizon the adviser uses to analyze 

progress, and the relationship between 

the impact the adviser is seeking to 

achieve and financial return(s). 

We are also proposing that if an 

adviser uses, for any significant strategy, 

criteria or a methodology to evaluate, 

select, or exclude investments based on 

the consideration of ESG factors, it must 

describe those criteria and/or 

methodologies and how it uses them. 

An adviser that employs different 

criteria or methodologies for different 

strategies would include the proposed 

disclosures for each significant strategy. 

Similar to our proposed disclosures for 

funds, proposed sub-Item 8.D would 

provide a non-exclusive list of criteria 

and methodologies to address, as 

applicable. They are an adviser’s use of: 

(i) An internal methodology, a thirdparty criterion or methodology such as 

a scoring provider or framework, or a 

combination of both, including an 

explanation of how the adviser 

evaluates the quality of relevant thirdparty data; 

(ii) An inclusionary or exclusionary 

screen, including an explanation of the 

factors the screen applies, such as 

particular industries or business 

activities it seeks to include or exclude 

and if applicable, what exceptions apply 

to the inclusionary or exclusionary 

screen; and 

(iii) An index, including the name of 

the index and a description of the index 

and how the index utilizes ESG factors 

in determining its constituents. 

As described above, this disclosure is 

designed to help a client or prospective 

client understand how the adviser 

implements ESG into its investment 

process so that a client with ESG 

investing objectives can evaluate 

whether the adviser’s ESG investment 

process matches the client’s objectives 

and expectations. Under the proposed 

requirement, if an adviser applies 

inclusionary or exclusionary investment 

screens based on ESG factors, the 

adviser would describe those screens, 

including identifying the specific 

industries or business activities it seeks 

to include or exclude and any 

applicable exceptions. If an adviser 

utilizes other criteria or methodologies 

to evaluate, select, or exclude 

investments based on the consideration 

of ESG factors, for example relying on 

an internal scoring methodology for 

investments based on ESG factors, it 

would describe the internal 

methodology and how the adviser uses 

it. If an adviser’s criteria or 

methodologies include following a 

third-party ESG framework, it would 

describe, and explain how it uses, the 

framework and may consider providing 

a hyperlink to the framework in its 

brochure to enhance investors’ 

understanding of the framework. 

(b) Item 10: Other Financial Industry 

Activities and Affiliations 

Advisers are currently required to 

disclose information about their other 

financial industry activities and 

affiliations in Item 10 of Form ADV Part 

2A. We are proposing an amendment to 

Item 10.C. to require an adviser to 

describe any relationship or 

arrangement, that is material to the 

adviser’s advisory business or to its 

clients, that the adviser or any of its 

management persons have with any 

related person that is an ESG consultant 

or other ESG service provider (for 

purposes of this release, a ‘‘related 

person ESG provider’’).197 Related 

person ESG providers may include, for 

example, ESG index providers and ESG 

scoring providers.198

In our view, the relationship between 

an adviser or its management person 

and a related person ESG provider is the 

type of relationship the disclosure in 

this item was designed to address 

because such a relationship could create 

conflicts of interest. For example, if an 

adviser’s related person provides ESG 

ratings or an ESG index, the adviser 

could be incentivized to employ its 

related person ESG provider’s services 

rather than purchasing ESG ratings or 

indices from unrelated ESG providers. 

The proposed amendments would 

require the adviser to identify the 

related person ESG provider, describe 

its relationship or arrangement with the 

provider, and if the relationship or 

arrangement creates a material conflict 

of interest with clients, describe the 

nature of the conflict, as well as how the 

adviser addresses it. 

Additionally, while some advisers’ 

related person ESG providers may also 

be related persons falling into other 

categories listed in Item 10.C (e.g., other 

investment advisers or broker-dealers), 

others may not fall into any of those 

categories. We believe adding ESG 

providers to the list of related parties 

covered under Item 10.C would promote 

advisory clients and prospective clients 

receiving full and fair disclosure of the 

conflicts created by an adviser’s 

relationships or arrangements with 

related persons. Clients and prospective 

clients would be able to incorporate 

related person ESG providers and 

potential conflicts of interest into their 

adviser selection processes. In some 

cases, the client may not be comfortable 

with the conflicts of interest that those 

affiliations create, while other clients 

may value an advisory relationship that 

allows for broader access to ESG 

providers and may seek an adviser with 

ESG provider affiliates. 

(c) Item 17 Voting Client Securities 

Among other matters, Item 17 of the 

brochure requires advisers that have, or 

will accept, the authority to vote client 

securities to briefly describe their voting 

policies and procedures. We are 

proposing to amend Item 17.A to require 

advisers that have specific voting 

policies or procedures that include one 

or more ESG considerations when 

voting client securities to include in 

their brochures a description of which 

ESG factors they consider and how they 

consider them.199 If an adviser has 


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proposing in this context—and to the extent not 

addressed elsewhere in their brochures—that 

advisers should describe the ESG factors they 

consider. If an adviser provides such a description 

earlier, then a cross reference to such description 

would meet this proposed requirement. 

200An adviser generally should include whether 

the adviser allows clients to direct their votes on 

ESG-related voting matters. 

different voting policies and procedures 

for strategies that address ESG-related 

matters, or for different clients or 

different ESG-related strategies, the 

adviser generally should describe those 

differences.200

These amendments are designed to 

provide clients and prospective clients 

additional information on proxy voting 

practices at these advisers given some 

clients’ increased focus on ESG-related 

issues. We believe that clients (and 

other market participants) could use this 

information to understand better and to 

monitor advisers’ engagement with 

portfolio companies on ESG issues. In 

addition, the Commission would be 

better able to understand the variety of 

advisers’ ESG-related proxy voting 

practices that are emerging in the 

markets. 

We request comment on all aspects of 

these proposed amendments to Items 8, 

10, and 17 of Form ADV Part 2A, 

including the following items. 

135. Instead of our proposed narrative 

ESG disclosures that would be similar 

in style of presentation to the rest of the 

brochure, should advisers be required to 

present ESG-related information in the 

brochure in a particular format (e.g., a 

table or chart),? If so, should we require 

a format similar to the format we are 

proposing for funds? Should it differ? 

Should advisers be required to use other 

formatting and design features to 

highlight or distinguish ESG-related 

disclosures from other information 

provided in any of these Items? For 

example, should we require advisers to 

use subheadings or another formatting 

feature designed to identify ESG-related 

information? Should we consider 

moving any of the proposed disclosures 

to a separate section of the brochure or 

to a new ESG appendix to the brochure, 

and/or should we require an ESGspecific brochure? 

136. Is there other information about 

the consideration of ESG factors when 

providing investment advice that 

advisers should be required to include 

in their brochures? If so, please 

describe. 

137. Is it clear from the current 

brochure Item 4 that an adviser that 

offers advisory services that may be 

tailored to the ESG preferences of its 

clients is required to explain whether 

(and, if so, how) it tailors its advisory 

services and whether clients may 

impose restrictions on investing in 

certain securities or types of securities? 

If not, should we also propose to specify 

that all advisers that tailor their 

advisory services based on the ESG 

preferences of clients must describe the 

tailoring as part of Item 4 (Advisory 

Business)? How do advisers currently 

describe and disclose information about 

their tailored ESG services in their 

brochures? 

138. To what extent do advisers tailor 

their advisory business to address the 

ESG preferences of individual clients? 

What level of tailoring do advisers offer? 

For example, can clients create their 

own exclusionary investment screens or 

do advisers offer a menu of ESG-focused 

strategies from which clients can 

choose, but not customize? 

139. Similar to our proposal for funds, 

we are not proposing to define ‘‘ESG’’ or 

similar terms for Form ADV (the 

brochure and Part 1A). Instead, our 

proposal for Form ADV would require 

advisers that consider ESG factors in 

any significant strategy or that tailor 

their advisory services to the individual 

needs of clients based on clients’ ESG 

preferences, to describe the factors they 

consider and how they implement them. 

Is this approach appropriate for Form 

ADV? Should we seek to define ‘‘ESG’’ 

or any of its subparts in Form ADV? Are 

the terms ‘‘E,’’ ‘‘S,’’ and ‘‘G,’’ and ‘‘ESG’’ 

factors as we refer to them in Form ADV 

appropriate and clear? 

140. We have proposed terms for ESG 

‘‘integration’’, ESG-‘‘focused’’ and ESG 

‘‘impact’’ under our Form ADV 

proposal, which are generally similar to 

the corresponding definitions we are 

proposing for funds. Is this appropriate? 

Do those terms capture the types of 

significant strategies for which advisers 

consider ESG factors? Are there 

alternative ways to describe advisers’ 

significant strategies that consider ESG 

factors? Should we additionally specify, 

similar to our approach for funds, that 

the description ESG-focused includes 

any significant strategy that includes 

certain terms in the strategy name or 

advertising practices? Are there other 

ways in which the terms as applied to 

advisers should differ from the 

corresponding definitions we are 

proposing for funds? 

141. Are the distinctions between 

integration and ESG-focused strategies, 

as proposed for Form ADV, sufficiently 

clear? Are there alternative ways to 

distinguish between integration and 

ESG-focused strategies? 

142. Similar to our proposal for funds, 

should the brochure require differing 

levels of disclosure for integration and 

ESG-focused strategies? Or, as proposed, 

should we permit advisers to respond to 

the brochure disclosures as applicable 

to their significant strategy or strategies? 

143. Should we, as proposed and 

similar to the proposed requirements for 

funds, specifically require an adviser to 

disclose additional information 

regarding impacts for any significant 

strategy that is an ESG impact strategy? 

Should we modify the application of 

this proposed requirement to advisers? 

For example, should advisers include 

the key performance indicators used to 

measure progress given that advisers do 

not have a disclosure that corresponds 

to the MDFP, where we are proposing to 

require specific disclosures by Impact 

Funds on their progress? 

144. Should we create an additional, 

separate disclosure requirement for an 

adviser’s significant strategy for which 

the adviser primarily uses shareholder 

engagement, as opposed to portfolio 

management, to implement its ESGfocus? Do advisers engage with portfolio 

companies on ESG issues in other ways 

that we have not proposed to address, 

but should specifically address, in the 

brochure? 

145. As proposed, should we require 

advisers to describe in the brochure 

each of their significant strategy or 

strategies for which they consider ESG 

factors, and to provide the proposed 

information about how they incorporate 

those factors? Should we additionally 

provide a non-exhaustive list of 

examples of ESG factors in Form ADV, 

and allow advisers to add factors as 

applicable? Are there any other 

approaches that we should take in 

providing guidance to advisers as to 

what constitutes ESG? 

146. As proposed, should we require 

advisers to describe in Item 8 their 

criteria or a methodology for evaluating, 

selecting, or excluding investments in 

their significant strategy or strategies 

based on the consideration of ESG 

factors? Do commenters agree with the 

non-exhaustive list of criteria or 

methodology we included in this Item? 

Is it clear and appropriate? 

147. Should we, as proposed, include 

the use of third-party frameworks that 

incorporate ESG factors in the nonexhaustive list? Should we require 

additional detail about the framework 

(in addition to, as proposed, a 

description of the framework or 

standard and whether (and how) the 

adviser uses it), and if so, what 

additional disclosures should we 

require? 

148. Are there other types of 

disclosure about advisers’ significant 

strategies for which the adviser 

considers ESG factors that a client 

would find helpful? If so, what 


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201See Form ADV Part 2A, Appendix 1; 

Instructions for Part 2A of Form ADV: Preparing 

Your Firm Brochure, at Instruction 10. In wrap fee 

programs, clients generally are charged one fee in 

exchange for both investment advisory services and 

the execution of transactions as well as other 

services. 

202Proposed Form ADV, Part 2A, Appendix 1, 

Item 6.A.4. 

additional disclosures would be helpful 

for a client? Where should that 

additional disclosure be located in the 

brochure? 

149. Would an adviser with multiple 

significant strategies that each consider 

ESG factors differently be able to 

explain the proposed required 

information for each significant 

strategy? Should we require advisers to 

include our proposed disclosures for all 

strategies and methods of analysis that 

consider ESG factors? For instance, an 

adviser that tailors its advisory services 

based on the ESG preferences of 

individual clients generally would 

explain such tailoring in response to the 

current Item 4, but may not be required 

to describe that tailored strategy in Item 

8 if the strategy is not significant. In that 

case, should an adviser disclose the 

tailored strategy in one or both Items? 

150. Item 8.B currently requires 

advisers to explain material risks 

involved for each of its significant 

strategies, which we believe includes 

material risks associated with an 

adviser’s ESG investing. Does an 

adviser’s consideration of ESG factors in 

implementing its significant strategies 

create any material, significant, or 

unusual risks related to its 

consideration of ESG factors? If so, what 

are some examples and how do advisers 

describe those risks? Should we amend 

Item 8.B to state explicitly that advisers 

must include the material risks involved 

in each significant strategy for which 

the adviser considers any ESG factors? 

151. Should we additionally require 

all advisers that consider ESG factors as 

part of their significant strategies to state 

that the consideration of ESG factors 

may lead to the adviser selecting or 

recommending an investment that may 

not generate the same level of returns as 

investments where the adviser does not 

consider ESG factors? Or, should 

advisers be required to describe the 

applicable risks in their own words? 

152. As proposed, should we require 

advisers to disclose whether they or 

their management persons have any 

relationships or arrangements with 

related person ESG providers (i.e., a 

related person that is an ESG 

consultants or other ESG service 

provider) that are material to the 

adviser’s business or to its clients? Is it 

common for advisers to have agreements 

or arrangements with related person 

ESG providers that are material to the 

adviser’s business or to its clients? If so, 

what is the nature of such 

arrangements? Do any of those 

agreements or arrangements create 

conflicts of interest? If so, what conflicts 

of interest do they create and how do 

advisers address those conflicts? 

153. Should we define the term ‘‘ESG 

consultants or other ESG service 

providers’’ in the Form ADV glossary? If 

so, what definition should we adopt? 

Given the range of services they 

provide, would a definition be useful? 

Alternatively, should we provide 

additional guidance on the types of 

entities that would qualify as an ESG 

consultant or other ESG service provider 

for purposes of Form ADV reporting? If 

so, what guidance should we provide? 

To the extent that there are a variety of 

these types of providers, should we 

require or permit advisers to identify 

particular categories of ESG consultants 

or other ESG service providers? If so, 

what categories? 

154. As proposed, should advisers 

that consider ESG factors when voting 

client securities be required to provide 

the proposed information in Item 17 

about their consideration of ESG factors 

when voting client securities? Should 

we require additional disclosures 

regarding voting client securities? If so, 

please describe the additional 

information. 

155. Should advisers that do not 

consider ESG factors when voting client 

securities be required to expressly 

disclose this fact in their brochures? 

(d) Wrap Fee Brochure (Form ADV Part 

2A, Appendix 1) 

Advisers that sponsor wrap fee 

programs are required to prepare a 

specialized brochure that must be 

delivered to their wrap fee clients 

(‘‘wrap fee program brochure’’).201

Because wrap fee programs may 

incorporate ESG factors in the selection 

of portfolio managers for the wrap fee 

clients, we are proposing ESG 

disclosure requirements for wrap fee 

program brochures. We believe that 

wrap fee clients should receive similar 

ESG-related information as advisory 

clients that do not participate in such 

programs. However, we are proposing 

disclosure requirements tailored to this 

structure. We believe this information 

would help current and prospective 

wrap fee clients understand better how 

wrap fee programs consider ESG factors 

and help to facilitate clients’ evaluations 

and comparisons of wrap fee programs 

that consider ESG factors. 

Advisers sponsoring wrap fee 

programs are required to describe in 

Item 4 of their wrap fee brochures the 

services, including the types of portfolio 

management services, provided under 

each program. Like the proposed 

brochure disclosures, we propose to 

amend this Item to specify that advisers 

that consider ESG factors in their wrap 

fee programs must provide a description 

of what ESG factors they consider, and 

how they incorporate the factors under 

each program. Similar to our proposed 

brochure amendments, we would not 

define E, S, or G, but our proposed 

amendments to the wrap fee program 

brochure would require advisers to 

discuss any ESG factors they consider. 

Advisers sponsoring wrap fee 

programs are required to describe in 

Item 6 of their wrap fee brochures how 

they select and review portfolio 

managers within their wrap fee 

programs, the basis for recommending 

or selecting portfolio managers for 

particular clients, and the criteria for 

replacing or recommending the 

replacement of portfolio managers for 

the program and for particular clients. 

Additionally, among other disclosures, 

Item 6 requires a description of any 

standards used to calculate portfolio 

manager performance. The selection, 

and replacement of portfolio managers 

within a wrap fee program is an integral 

part of the adviser’s advisory services 

for clients of the wrap fee program. 

Therefore, similar to above, we are 

proposing an amendment to this Item to 

require advisers that consider ESG 

factors when selecting, reviewing, or 

recommending portfolio managers 

within the wrap fee programs they 

sponsor, to describe the ESG factors 

they consider and how they consider 

them.202 The description of ESG factors 

generally should include the types ESG 

information the adviser considers and 

must include how the adviser considers 

the ESG factors. We believe these 

proposed additions would help wrap fee 

clients and potential clients with ESG 

investing objectives to evaluate whether 

the adviser’s selection and evaluation of 

the program’s portfolio manager 

matches the client’s objectives and 

expectations for the program’s portfolio 

management. 

Additionally, we are proposing three 

disclosure requirements as part of 

advisers’ description of how they 

consider the relevant ESG factors 

described above. All three disclosures 

are designed to facilitate clients’ 

determinations of whether and how a 

wrap fee program that claims to 

consider ESG factors, actually considers 

ESG factors when selecting, reviewing 

or recommending the programs’ 

portfolio managers. With this 


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203Proposed Form ADV, Part 2A, Appendix 1, 

Item 6.A.4. 

204See Instructions for Part 2A Appendix 1 of 

Form ADV: Preparing Your Wrap Fee Program 

Brochure, Instruction 6. 

205 Id. 

206 Item 6.C of the wrap fee program brochure also 

currently requires a sponsor-manager to include a 

response to Item 17 of the brochure (Voting Client 

Securities), for which we are proposing an 

amendment to address ESG. 

information, clients and prospective 

wrap fee clients could compare wrap fee 

programs’ processes for selecting, 

reviewing or recommending portfolio 

managers based on ESG factors, and find 

wrap fee programs with portfolio 

management that best match their ESG 

investing goals. We believe our 

proposed disclosures would also help 

the Commission better understand the 

variety of ESG investing approaches that 

are emerging in wrap fee programs. 

The first of the three disclosures 

would require advisers to describe any 

criteria or methodology they use to 

assess portfolio managers’ applications 

of the relevant ESG factors into their 

portfolio management. This would 

include any industry or other standards 

for presenting the achievement of ESG 

impacts and/or third-party ESG 

frameworks, and any internal criteria or 

methodology.203 For example, if an 

adviser evaluates a portfolio manager’s 

achievement of ESG impacts by 

comparing its impacts to an ESG 

benchmark or ESG index, the adviser 

generally should describe how that 

portfolio manager’s ESG impacts are 

calculated, the applicable benchmark or 

index, and how the portfolio manager’s 

impacts compared to the specified 

benchmark or index. Similarly, if an 

adviser evaluates a portfolio manager’s 

application of specific ESG factors by 

determining whether and how the 

portfolio manager follows a global ESG 

framework, the adviser generally should 

describe the framework and how it 

assess whether the manager follows the 

framework. 

Second, we are proposing that these 

advisers provide an explanation of 

whether they review, or whether a third 

party reviews, portfolio managers’ 

applications of the relevant ESG factors 

described above. If so, our proposal 

would require them to describe the 

nature of the review and the name of 

any third party conducting the review. 

An example of this could be an adviser 

that engages a third party to review 

information reported by a portfolio 

manager about the carbon emissions of 

its portfolio companies to determine its 

accuracy. In this case, the adviser would 

be required to identify the third party 

completing the review and the nature of 

the review, which generally should 

explain how the third party assesses the 

accuracy of the emissions information 

provided by the portfolio manager. 

Another example could be an adviser 

that employs a third-party ESG service 

provider to score portfolio managers 

based on their considerations of specific 

ESG factors. In this case, the adviser 

would be required to name the thirdparty ESG provider and the nature of the 

review, which generally should describe 

the relevant ESG factors it uses to score 

portfolio managers, and how it arrives at 

the scores. 

Third, we are proposing to require 

that an adviser explain, if applicable, 

that neither the adviser nor a third party 

assesses portfolio managers’ 

applications of the relevant ESG factors 

into their portfolio management, and/or 

that the portfolio managers’ applications 

of the relevant ESG factors may not be 

calculated, compiled, assessed, or 

presented on a uniform and consistent 

basis. Whether the adviser (or a third 

party) actually reviews how the 

portfolio manager applies the relevant 

ESG factors is important for wrap fee 

clients to understand. For example, if a 

portfolio manager’s application of the 

relevant ESG factors is calculable and 

presentable on a uniform and consistent 

basis, but the adviser discloses that it 

does not review the calculation or 

presentation, a client can assess whether 

its wrap fee sponsor is committed to 

evaluating, and/or equipped to evaluate, 

the portfolio manager’s application of 

ESG factors. 

As part of this third disclosure item, 

the adviser would also be required to 

state and explain why, if applicable, any 

ESG factors it considers in evaluating 

portfolio managers may not be 

calculated, compiled, assessed, or 

presented on a uniform and consistent 

basis. We believe this information 

would assist an investor in 

understanding the limitations of any 

information provided to it about the 

portfolio manager’s applications of 

relevant ESG factors. In this case, the 

client can request additional 

information from the sponsor about how 

the sponsor reviews the manager’s 

application of ESG factors in its 

portfolio management. 

Finally, we are proposing to amend 

Item 6.C. to require any adviser that acts 

(itself or through its supervised persons) 

as a portfolio manager for a wrap fee 

program described in its wrap fee 

program brochure (for purposes of this 

release, a ‘‘sponsor-manager’’), to 

respond to an additional specified 

brochure Item; namely, proposed Item 

8.D. Item 6.C of the wrap fee program 

brochure currently requires sponsormanagers to respond to specified 

brochure Items that describe the 

investments and investment strategies 

the adviser (or its supervised persons) 

will use as portfolio manager.204 Rather 

than deliver both a wrap fee program 

brochure and a brochure to its wrap fee 

program clients, a sponsor-manager may 

deliver just a wrap fee program brochure 

to its wrap fee program clients, provided 

the clients receive no other advisory 

services from the adviser.205

For a sponsor-manager that considers 

ESG factors for a significant strategy of 

its wrap fee program, we believe the 

information required by proposed Item 

8.D of the brochure is an important 

component of the adviser’s description 

of its investment strategies. Because 

wrap fee clients of sponsor-managers are 

generally not required to receive 

separate brochures from the sponsormanager, we believe it would be 

beneficial for these clients to receive 

these ESG disclosures in the wrap fee 

brochure. Further, they would complete 

the sponsor-manager’s currently 

required disclosure in response to 

brochure Item 8.A.206

We request comment on all aspects of 

the proposed amendments to the wrap 

fee brochure, including the following 

items. 

156. Do commenters agree that wrap 

fee program participants should receive 

similar ESG-related information as 

advisory clients that do not participate 

in such programs, tailored to the wrap 

fee program structure as proposed? 

157. Have we tailored the proposed 

requirements appropriately to the wrap 

fee program structure? If we should 

tailor the requirements in a different 

way, please describe how. For example, 

should we, as proposed in Item 6 of the 

wrap fee program brochure, require 

advisers that consider ESG factors in 

their portfolio manager selection, review 

and recommendations to describe those 

ESG factors and how they consider 

them? Are there other ways a wrap fee 

program sponsor could consider ESG 

factors in its wrap fee program services 

in addition to in its selection and 

evaluation of portfolio managers? 

158. Do commenters agree with the 

proposal’s specified disclosures for 

wrap fee program sponsors? For 

example, should we, as proposed, 

require an adviser that engages a third 

party to review portfolio managers’ 

applications of relevant ESG factors, to 

describe the nature of the review and 

the name of any third party conducting 


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207Throughout this Release, we refer to advisers 

exempt from registration under sections 203(l) and 

203(m) of the Advisers Act as ‘‘exempt reporting 

advisers.’’ Because BDCs are not required to file 

Form N–CEN, the proposed amendments to Form 

N–CEN will not apply to BDCs. 

208Form N–CEN is currently submitted using a 

structured, XML-based data language that is specific 

to that Form. 

209See supra section II.A.1 (discussing proposed 

prospectus ESG disclosure enhancements); see also 

section II.A.3 (discussing proposed annual report 

ESG disclosure requirements). 

210See Investment Company Reporting 

Modernization, Investment Company Act Release 

No. 31610 (May 20, 2015) [80 FR 33590 (June 12, 

2015)] (‘‘Investment Company Reporting 

Modernization Release’’). 

211Proposed Item C.3(j)(i) through (iii) of Form 

N–CEN. 

212Proposed item C.3(j)(iv) of Form N–CEN. 

213See supra at text preceding footnote 25 

(discussing ESG service provides and the role they 

play in providing ESG information regarding 

companies). 

the review? Are there any sensitivities 

with requiring disclosure of the name of 

the reviewer? 

159. Should we, as proposed, amend 

Item 6.C. to include a required response 

to proposed Item 8.D of the brochure, 

which would apply only to certain 

sponsor-managers that deliver wrap fee 

program brochures? Alternatively, 

should all wrap fee program sponsors be 

required to include this information in 

their wrap fee program brochures? 

Would this information be necessary in 

the wrap fee program brochure for wrap 

fee program clients that receive both a 

wrap fee program brochure from the 

sponsor and a brochure from the 

program’s third-party portfolio 

manager? Under our proposal, are there 

wrap fee clients that would not receive 

this information, and if so, who are 

they? Similarly, we currently require 

certain sponsor-managers to respond in 

the wrap fee program brochure to Item 

17 (Voting Client Securities) of the 

brochure, which would include our 

proposed ESG amendment. Should we 

alternatively require all wrap fee 

sponsors to disclose in their wrap fee 

program brochures whether and how 

their portfolio managers incorporate 

ESG factors into proxy voting for clients’ 

securities in the wrap fee program? 

160. What, if any, ESG-related 

information do advisers (or third parties 

on their behalf) evaluate when they 

evaluate portfolio managers for wrap fee 

programs? For example, do they 

evaluate portfolio managers’ quantified 

information such as GHG metrics for 

managed portfolios, as applicable? 

161. Do advisers engage in any other 

types of evaluation of portfolio 

managers’ applications of ESG factors 

that our proposed disclosure 

requirements would not cover for which 

we should require disclosure? If so, 

what are they and how should we 

include them? Alternatively, should we 

limit our disclosure requirement to 

address only an adviser’s evaluation of 

portfolio managers’ achievement of 

stated metrics or other quantifiable 

information, such as GHG emissions 

reductions? 

C. Regulatory Reporting on Form N–CEN 

and ADV Part 1A 

To complement our proposed 

investor- and client-facing disclosures, 

we are also proposing to collect censustype information about funds’ and 

advisers’ uses of ESG factors, including 

their uses of ESG providers. We are 

proposing to amend Forms N–CEN and 

ADV Part 1A for registered funds and 

advisers (both registered investment 

advisers and exempt reporting advisers), 

respectively, to collect this information 

using the structured XML-based data 

languages in which those Forms are 

currently submitted, thus providing the 

Commission and investors with 

consistent, usable, and comparable 

data.207 We believe that our proposed 

new data on Forms N–CEN and ADV 

Part 1A would assist both the 

Commission staff and the public in 

understanding the trends in this 

evolving space including, for example, 

changes in total assets under 

management for which funds or 

advisers incorporate E, S, and/or G. We 

additionally believe clients and 

investors would use this data, together 

with the narrative ESG information we 

are proposing to require in investor- and 

client-facing disclosures, to make more 

informed decisions about their selection 

of funds or advisory services that 

consider ESG factors. 

1. Form N–CEN 

As discussed above, the information 

that is currently available to the 

Commission and data users, including 

investors and other market participants, 

regarding how funds incorporate ESG 

factors into their investment strategies 

and portfolio holdings is inconsistent 

across funds. To enhance the ability of 

the Commission, investors and other 

market participants to track trends in 

ESG funds, we are proposing 

amendments to Form N–CEN that are 

designed to collect census-type 

information regarding these funds and 

the ESG-related service providers they 

use in a structured data language.208 We 

believe that this standardized and 

structured disclosure would 

complement the proposed tailored 

narrative disclosure included in the 

fund prospectus and annual report 

discussed above.209 For example, the 

Commission, investors and other market 

participants could use this information 

to identify efficiently funds that 

incorporate ESG factors into their 

investment strategies and categorize 

funds based on the type of ESG strategy 

they employ. This information would 

also enhance the Commission’s ability 

to carry out its regulatory functions, 

including assessing trends related to 

ESG investing in the fund industry and 

their processes for incorporating ESG 

into their investment strategies.210

Specifically, we are proposing to add 

proposed Item C.3(j) of Form N–CEN 

that asks questions tailored to ESG 

funds’ strategies and processes. A fund 

that indicates that it incorporates ESG 

factors would then be required to report, 

among other things: (i) the type of ESG 

strategy it employs (i.e., integration, 

focused, or impact) as those strategies 

are defined in proposed Item 4(a)(2)(i) of 

Form N–1A and proposed Item 8.2.e of 

Form N–2, as applicable; (ii) the ESG 

factor(s) it considers (i.e., E, S, and/or 

G);and (iii) the method it uses to 

implement its ESG strategy (i.e., 

tracking an index, applying an 

inclusionary and/or exclusionary 

screen, proxy voting, engaging with 

issuers, and/or other).211 In responding 

to proposed Item C.3(j) of Form N–CEN, 

an ESG-Impact Fund would be required 

to report that it is both an ESG-Focused 

Fund and an ESG-Impact Fund. 

The proposed amendments to Form 

N–CEN would also collect information 

regarding whether a fund considers 

ESG-related information or scores 

provided by ESG providers in 

implementing its investment strategy.212

If so, the fund would be required to 

provide the legal name and legal entity 

identifier (‘‘LEI’’), if any, or provide and 

describe other identifying number of 

each such ESG provider.213 A fund 

would also be required to report 

whether the ESG provider is an 

affiliated person of the Fund. 

Requiring a fund to report information 

regarding its consideration of 

information from an ESG provider 

would help the Commission, investors, 

and other market participants 

understand any differences in how 

funds with similar investment strategies 

rely on ESG providers in implementing 

those strategies. The information on 

Form N–CEN also would allow analysis 

of the extent to which funds rely on 

information provided by a particular 

ESG provider, such as the number of 

funds, or amount of AUM, that may rely 

on information provided by that 

provider. Additionally, we believe that 

requiring funds to disclose whether an 

ESG provider is an affiliated person of 

the fund would assist Commission, 


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214See International Organization of Securities 

Commissions (‘‘IOSCO’’), Environmental, Social 

and Governance (ESG) Ratings and Data Products 

Providers: Consultation Report, at 35, available at 

CR02/2021 Environmental, Social and Governance 

(ESG) Ratings and Data Products Providers 

(iosco.org) (discussing the potential conflicts of 

interest of ESG providers and the need to 

appropriately manage such conflicts). 

215Proposed item C.3(j)(vi) of Form N–CEN. 

216See supra footnote 8 (discussing the various 

climate and sustainability frameworks that have 

developed over time). 

217See proposed Item C.3(b)(i) of Form N–CEN. 

218Exempt reporting advisers must complete the 

following Items of Part 1A: 1, 2, 3, 6, 7, 10, and 11, 

as well as corresponding schedules. 

investors, and other market participants 

in evaluating conflicts of interest that 

could exist when an ESG provider is 

also an affiliated person of the fund.214

The proposed amendments to Form 

N–CEN would also require a fund to 

report whether the fund follows any 

third-party ESG frameworks.215 If so, the 

fund would be required to provide the 

full name of such frameworks.216 This 

information would help the 

Commission, investors and other market 

participants to classify funds based on 

the ESG frameworks they follow in 

order to understand and assess trends in 

the market better. 

Form N–CEN currently requires any 

fund that tracks the performance of an 

index to identify itself as an index fund 

and provide certain information about 

the index, and so this requirement 

currently applies to ESG funds that 

track an index. We are proposing 

amendments to Form N–CEN that 

would require all index funds to report 

the name and LEI, if any, or provide and 

describe other identifying number of the 

index the funds track.217 We believe 

that this information will help the 

Commission, investors, and other 

market participants to monitor trends in 

ESG investing through reference to 

indexes. Additionally, because we 

believe that these amendments would 

be helpful for all index funds to 

understand better the use of indexes in 

the industry more generally, we are 

proposing to require all funds to 

identify the indexes they track. 

We request comment on our proposed 

amendments to Form N–CEN, including 

the following issues. 

162. Should funds be required to 

report the proposed census-type 

information regarding their 

incorporation of ESG factors into their 

investment strategy on Form N–CEN? 

Would this information be helpful to 

investors and other market participants? 

How would investors and other market 

participants use this information? 

163. Should we, as proposed, use the 

definitions of the terms ‘‘Integration 

Fund’’ and ‘‘ESG-Focused Fund’’ as 

they appear in proposed Item 4(a)(2)(i) 

of Form N–1A? Would this approach 

make it easier for funds to comply with 

this reporting requirement? Should we 

adopt a different definition of these 

terms? 

164. Should we, as proposed, require 

ESG-Focused Funds to further identify 

themselves as Impact Funds, if relevant? 

Should we, as proposed, use the 

definition of the term ‘‘Impact Fund’’ as 

it appears in Item 4(a)(2)(i)(B) of Form 

N–1A? Would this approach make it 

easier for funds to comply with the 

proposed reporting requirement on 

Form N–CEN? Should we adopt a 

different definition for the term ‘‘Impact 

Fund’’? 

165. Should we, as proposed, require 

ESG funds to indicate whether they 

consider E, S, or G factors? Should we, 

as proposed, allow them to check all 

that apply? Alternatively, should we 

require them to select an ESG factor 

only if the fund considers it to a 

material degree? If so, how should we 

define materiality? 

166. Should we, as proposed, require 

ESG funds to indicate what method the 

fund uses to implement its ESG strategy, 

including by tracking an index, 

applying an inclusionary and/or 

exclusionary screen, proxy voting, or 

engaging with issuers? Should we, as 

proposed, allow funds to check all that 

apply? Are there any other types of 

investment strategies that funds may use 

not reflected in the proposed list? 

Would investors and other market 

participants find this information 

useful? Are there ways we can make this 

information more useful? For example, 

for each of the methods of ESG strategy 

implementation, should we require 

funds to further indicate which E, S, or 

G factor, or a factor within E, S, or G, 

they consider within each method? 

167. Should we, as proposed, require 

funds to report whether they consider 

ESG information or scores from ESG 

providers and the full name and LEI, if 

any, or provide and describe other 

identifying number of the ESG provider? 

Are there ways we can enhance the 

usefulness of this information? For 

example, as discussed above, funds vary 

in the level of their reliance on ESG 

providers. Therefore, should we require 

funds to disclose the name of their ESG 

provider only if they rely on 

information to a material extent? If so, 

how should we define material? 

168. Should we, as proposed, require 

funds to report whether the ESG 

provider is an affiliated person of the 

fund? Are there other types of conflicts 

of interest that we should require funds 

to report? For example, should we 

require funds to report whether an ESG 

provider provides other, non-ESG 

related, services? 

169. Should we define the term ‘‘ESG 

consultants or other ESG service 

providers’’ on Form N–CEN? If so, what 

definition should we adopt? 

170. Should we, as proposed, require 

all index funds to report the name and 

LEI, if any, or provide and describe 

other identifying number of their index 

on Form N–CEN? Would ESG funds that 

seek to track an index consider 

themselves to be both ESG funds and 

index funds on Form N–CEN? Are there 

funds that consider an ESG index as 

part of their investment strategy but do 

not identify themselves as an index 

funds because they do not track the 

index? Is there any additional 

information regarding indexes that we 

should collect specifically for ESG 

funds? 

171. Should we, as proposed, require 

funds to report whether they follow any 

third-party ESG framework(s) and the 

name(s) of any such entities, as 

applicable? Should funds be required to 

report any other information, such as a 

link to the website of the framework? In 

light of the proliferation of such 

frameworks, would this information be 

useful to investors and other market 

participants? Are there ways to enhance 

the information provided? For example, 

should we allow funds to report this 

information only if they follow such 

frameworks to a certain extent? If so, 

how should we set such threshold for 

reporting? 

2. Form ADV Part 1A Reporting 

We are proposing amendments to 

Form ADV Part 1A designed to collect 

information about an adviser’s uses of 

ESG factors in its advisory business. 

These proposed amendments would 

expand the information collected about 

the advisory services provided to 

separately managed account clients and 

reported private funds. We would apply 

the proposed additions to separately 

managed account reporting in Item 5 to 

only investment advisers registered or 

required to be registered with the 

Commission, and would apply the 

proposed additions to Items 6 and 7 

(e.g., other business activities and 

private fund reporting) to those advisers 

and exempt reporting advisers. We 

believe it is appropriate to continue to 

collect information from both types of 

advisers for Items that each are 

currently required to complete.218 These 

proposed items are designed to improve 

the depth and quality of the information 

we collect on investment advisers and 

to facilitate our risk monitoring 


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219For purposes of reporting on Form ADV, we 

consider advisory accounts other than those that are 

pooled investment vehicles (i.e., registered 

investment companies, business development 

companies, and pooled investment vehicles that are 

not investment companies (i.e., private funds)) to be 

separately managed accounts. See 2016 Adopting 

Release [81 FR 81870 (Nov. 18, 2016)], at text 

preceding footnote 8. See also Form ADV Part 1A 

Item 5.K(1) (describing separately managed account 

clients). 

220Advisers to registered investment companies 

and BDCs would be required to respond to the 

proposed new question in Item 5 of Form ADV, 

reporting whether they seek to follow any thirdparty ESG framework(s) in connection with their 

advisory services. 

221See Brochure Adopting Release, supra 

footnote 188, at text accompanying n.74 (describing 

significant investment strategies or methods of 

analysis in the context of a Form ADV brochure 

Item about risk disclosure as providing a threshold 

for disclosure that ‘‘captures those methods of 

analysis or strategies that will be relevant to most 

clients’’). 

222See Proposed Form ADV Part 1A Item 5.K. 

Responses to this question would refer to the 

adviser’s separately managed account clients in the 

aggregate (other than when the adviser has only one 

separately managed account client). 

223For example, if an adviser has some SMA 

strategies that are ESG integration, and others that 

are ESG-focused and ESG-impact, the adviser 

would select all three strategies. An adviser with 

only one SMA strategy, however, would select 

either ESG-integration or ESG-focus (and if it selects 

ESG-focus, it would also select ESG-impact, if 

applicable). This is because we believe that ESGintegration and ESG-focused strategies are distinct 

investment advisory strategies that would not be 

employed together in one strategy. 

224See Proposed Form ADV Part 1A Item 5.M. 

225See supra footnote 8 (discussing that many 

financial institutions sign on to climate and other 

sustainability frameworks in an effort to integrate 

ESG considerations and reporting into their 

business practices, offerings, and proxy voting). 

initiatives, which also serves to benefit 

current and prospective advisory 

clients. Moreover, because Form ADV is 

available to the public on our website, 

these amendments also are intended to 

provide advisory clients and the public 

additional information regarding 

advisers’ ESG investing. 

(a) ESG Data for Separately Managed 

Account Clients and Private Funds 

We are proposing amendments to 

Form ADV Part 1A to collect 

information about advisers’ uses of ESG 

factors for their separately managed 

account (‘‘SMA’’) clients and reported 

private funds. We are proposing 

amendments to Item 5.K. (Separately 

Managed Account Clients) and 

corresponding sections of Schedule D, 

which currently require advisers to 

provide information about their 

advisory businesses with respect to 

SMA clients.219 These amendments 

would collect aggregated information for 

an adviser’s applicable SMA clients. We 

are proposing similar amendments to 

private fund reporting in Section 7.B.(1) 

of Schedule D to collect information 

from private fund advisers about their 

uses of ESG factors in managing each 

reported private fund. This information 

would be similar to the information we 

are proposing to collect on Form N–CEN 

regarding ESG factors and include, for 

example, type of strategy (i.e., 

integration, ESG-focused, and ESG 

impact). 

We are proposing to focus this 

collection of information from advisers 

with respect to their SMA clients and 

private funds, rather than from advisers 

with respect to their registered 

investment companies and BDCs, 

because registered investment 

companies and BDCs would report 

similar ESG-related information, 

including on Forms N–CEN and in the 

fund prospectus.220 We believe that 

collecting this information would 

provide the Commission and current 

and prospective advisory clients with 

important information about advisers’ 

consideration of ESG factors in their 

advisory businesses, including the 

specific factors they consider, the types 

of ESG-related strategies they employ, 

and potential conflicts of interest with 

related person ESG providers.221 As 

discussed above, there is a current lack 

of consistent and comparable 

information among advisers that say 

they consider one or more ESG factors. 

This information would provide us with 

comparability across advisers and 

advance our regulatory goal of gaining a 

more complete understanding of 

advisers’ considerations of ESG factors 

in their separately managed account and 

private fund management businesses. 

We believe the proposed new reporting 

requirements would improve our ability 

to understand the ESG landscape and 

assess trends among investment 

advisers in this emerging and evolving 

area, and their processes for 

incorporating ESG into their investment 

strategies. We believe that this censusstyle disclosure would complement the 

proposed tailored narrative disclosure 

in the brochure and wrap fee program 

brochure discussed above. For example, 

the Commission, clients and other 

market participants could use this 

information to identify advisers that 

incorporate ESG factors into their 

investment strategies and categorize 

advisers based on the type of ESG 

strategy they employ. 

Type(s) of ESG-related strategy or 

strategies. We propose to require an 

adviser to disclose whether it considers 

ESG factors as part of one or more 

significant strategies (as defined above) 

in the advisory services it provides to its 

separately managed account clients, 

including in its selection of other 

investment advisers and/or as part of 

their advisory services when requested 

by separately managed account clients 

(together with significant strategies, for 

purposes of this release, ‘‘SMA 

strategies’’).222 If so, our proposal would 

require the adviser to indicate for its 

SMA strategies whether it employs an 

integration or ESG-focused approach, 

and if ESG-focused, whether it also 

employs an ESG-impact approach. 

Under our proposal, an adviser must 

select all three approaches, if it offers all 

three.223 These advisers would also 

report whether they incorporate one or 

more of E, S, and/or G factors into their 

SMA strategies. Similarly, if an adviser 

considers any ESG factors as part of one 

or more significant investment strategies 

or methods of analysis in the advisory 

services it provides to a reported private 

fund, the adviser would report whether 

it employs in its management of that 

private fund an ESG-integration or ESGfocused approach, and if ESG-focused, 

whether it also employs an ESG-impact 

approach. It would also report whether 

it incorporates one or more of E, S, and/ 

or G factors (and which factor(s)). This 

information would categorize general 

approaches to incorporating ESG to help 

Commission staff understand industry 

trends, as well as prepare for, conduct, 

and implement our risk-based 

examination program. 

(b) Third-Party ESG Framework(s) 

We also propose to require advisers to 

report whether they follow any thirdparty ESG framework(s) in connection 

with their advisory services.224 If so, the 

adviser would be required to report the 

name of the framework(s).225 This 

information would inform the 

Commission (and current and 

prospective advisory clients) that the 

adviser follows certain framework(s), if 

applicable. We believe that requiring the 

name of the framework would be useful 

to the Commission and clients as these 

frameworks are not uniform and some 

may apply only to very specific 

investment types. They can also range 

in complexity from a set of aspirational 

principles to, for example, highly 

prescriptive financial industry 

benchmarks for assessing and managing 

environmental and social risk for 

infrastructure projects. Requiring this 

information would provide Commission 

staff with additional data to assess and 

evaluate trends in this industry. 

Moreover, current and prospective 

clients could use this information to 

find advisers that follow ESG 


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frameworks that match their 

expectations for ESG investing. 

We request comment on all aspects of 

the proposed reporting of an adviser’s 

consideration of ESG factors for SMA 

clients and reported private funds and 

reporting their uses of third-party ESG 

framework(s), including the following 

items. 

172. Should advisers be required to 

report to the Commission on Form ADV 

Part 1A the proposed census-type 

information regarding their 

incorporation of ESG factors for SMA 

clients and reported private funds, as 

proposed? Would this information be 

helpful to current and prospective 

clients and other market participants? 

How would clients and other market 

participants use this information? 

173. Would the information required 

to answer the proposed questions in 

Item 5.K, 5.L, and Section 7.B.(1) and 

corresponding schedules be readily 

available to advisers? If not, why? 

174. Should we, as proposed, use the 

terms ESG ‘‘integration’’, ESG- 

‘‘focused’’, and ESG-‘‘impact’’ that are 

the same as we proposed for the 

brochure and similar to the terms we 

proposed to define for funds? Would 

this approach make it easier for advisers 

to comply with this reporting 

requirement? Alternatively, should we 

describe these terms differently for Part 

1A reporting? If so, how and why? 

175. Should we, as proposed, require 

advisers that consider ESG factors for 

their SMA clients and private funds to 

indicate whether they consider E, S, or 

G factors, and permit them to check all 

that apply? Alternatively, should we 

require them to select an ESG factor 

only if the adviser’s strategy or method 

of analysis considers it to a material 

degree? If so, how should we define 

materiality? 

176. Is there any different or 

additional information we should 

require about SMAs and private funds 

in these Items and corresponding 

schedules, and is there any proposed 

information we should not require? For 

example, should we require advisers to 

additionally report in Part 1A, as we are 

proposing to require for funds in Form 

N–CEN, whether they engage in any of 

the following to implement their ESG 

strategies: tracking an index, applying 

any inclusionary and/or exclusionary 

screen, or engaging with issuers? Would 

these activities be applicable to 

advisers’ SMA strategies and private 

funds, and would this information 

disclosed in the Part 1A census-style 

format provide the Commission and 

clients with valuable information about 

the adviser? If required, would this 

information for SMA strategies and/or 

each reported fund reveal non-public 

information regarding an adviser’s SMA 

strategy and/or a private fund’s trading 

strategies, analytical or research 

methodologies, trading data, and/or 

computer hardware or software 

containing intellectual property? 

177. If we should require disclosure of 

advisers’ uses of ESG indexes, should 

we require additional information such 

as the name and LEI, if any, or provide 

and describe other identifying number 

of their index? Are there advisers that 

consider an ESG index as part of their 

significant strategies but do not wholly 

track the ESG index? Is there any 

additional information regarding 

indexes that we should collect 

specifically on Part 1A for advisers that 

consider ESG factors, and if so, what? 

178. Should we collect different 

amounts or types of information from 

advisers about their uses of ESG factors 

in SMA strategies and management of 

their reported private funds depending 

on whether the adviser uses an 

integration or ESG-focused approach? 

Or, as proposed, should we require the 

same amount and type of information 

for integration or ESG-focused 

approaches? If we should require 

different amounts of information, what 

should those differences be, and should 

we further differentiate the information 

we collect about ESG-impact strategies 

from the information we collect about 

ESG-focused strategies? 

179. Should we collect different 

amounts or types of information from 

advisers about their uses of ESG factors 

in SMA strategies depending on 

whether advisers consider ESG factors 

(i) as part of their significant strategies 

versus (ii) only (or primarily) when 

requested by clients? Or, as proposed, 

should our questions cover both, 

together? Should we require separate 

reporting about advisers’ uses of ESG 

factors for certain SMA strategies versus 

others? 

180. As proposed, should we require 

all advisers to report whether the 

adviser follows any third-party ESG 

framework(s), and if so, to report the 

name of each framework? Are there 

ways to enhance the information 

provided? For example, should we 

allow advisers to report this information 

only if they follow such frameworks to 

a certain extent? If so, how should we 

set such threshold for reporting? Should 

we also require advisers report this 

information as it relates specifically to 

their SMA clients and/or reported 

private funds, or, as proposed, should 

we require advisers to provide this 

information as it relates to any part of 

their advisory business (without 

specifying which part)? 

181. Should we, similar to our 

proposal for funds, additionally require 

advisers to report whether they use any 

ESG providers for their SMA clients and 

private funds? If so, should we require 

advisers to report the full name and LEI, 

if any, or provide and describe other 

identifying number of the ESG provider, 

and/or whether the provider is an 

affiliate of the adviser or its 

management persons? Would this 

information provide the Commission 

with valuable information about the 

adviser and its use of ESG providers, in 

addition to the information we are 

proposing to collect about an adviser’s 

related-person ESG providers and other 

business activities as an ESG provider 

(discussed below in Items 6 and 7)? If 

so, should we require advisers to 

disclose the name of their ESG provider 

only if they rely on the ESG provider to 

a material extent? If so, how should we 

define material? 

182. Should we, similar to our 

proposal for funds, additionally require 

advisers to report on Part 1A whether 

they consider one or more ESG factors 

as part of the adviser’s proxy voting 

policies and procedures? Should we 

require advisers to indicate which E, S, 

or G factor, or a factor within E, S, or 

G, they consider as part of their proxy 

voting policies and procedures? 

183. Would any of our proposed 

disclosures reveal non-public 

information regarding an adviser’s SMA 

strategy and/or a private fund’s trading 

strategies, analytical or research 

methodologies, trading data, and/or 

computer hardware or software 

containing intellectual property? If so, 

how? Would our proposed disclosures 

otherwise have the potential to harm 

clients and investors in private funds or 

subject them to abusive market 

practices? If so, should we collect this 

information another way, such as 

through Form PF for advisers to private 

funds? If so, what information should 

we collect on Form PF versus Form 

ADV Part 1A? 

184. Do commenters agree that both 

advisers registered or required to be 

registered with the Commission and 

exempt reporting advisers should 

complete the proposed new questions in 

Section 7.B.(1) of Schedule D about 

their reported private funds, since both 

are currently required to report on 

private funds in Part 1A? If not, why 

not? 

(c) Additional Information About Other 

Business Activities and Financial 

Industry Affiliations 

We also propose to require advisers to 

disclose whether they conduct other 

business activities as ESG providers or 


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36696 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

226See 17 CFR 275.206(4)–7 (‘‘Advisers Act 

Compliance Rule’’) and 17 CFR 270.38a–1 

(‘‘Company Act Compliance Rule’’). 

227See Compliance Programs of Investment 

Companies and Investment Advisers, Release No. 

IA–2204 (Dec. 17, 2003) [68 FR 74714 (Dec. 24, 

2003)] at text accompanying n.11. 

228 Id. at nn.24–31 and accompanying text. 

229 Id. at text accompanying nn.17 through 23 and 

text accompanying n.37. 

230 Id. at nn.70–71 and accompanying text. 

231See, e.g., Risk Alert, Division of Examinations 

(Apr. 9, 2021), available at esg-risk-alert.pdf 

(sec.gov) (discussing, for example, firms that 

claimed to have formal processes in place for ESG 

investing, but have a lack of policies and 

procedures related to ESG investing, and 

compliance programs that did not appear to be 

reasonably designed to guard against inaccurate 

ESG-related disclosures and marketing materials). 

This Risk Alert represents the views of the staff of 

the Division of Examinations. It is not a rule, 

regulation, or statement of the Commission. The 

Commission has neither approved nor disapproved 

its content. The Risk Alert, like all staff statements, 

has no legal force or effect: it does not alter or 

amend applicable law, and it creates no new or 

additional obligations for any person. 

have related persons that are ESG 

providers by amending Items 6 and 7 of 

Part 1A (and Sections 6.A. and 7.A. of 

Schedule D). For each related person 

ESG provider, the adviser would be 

required to complete the relevant items 

in Section 7.A of Schedule D, which 

requires, for example, the related 

person’s SEC File Number (if any) and 

additional information about the 

adviser’s control relationship (if any) 

with the related person. We believe that 

the disclosures would better allow us to 

assess the potential conflicts of interest 

and risks created by relationships 

between advisers and affiliated ESG 

providers. We also believe that it would 

assist the public in better understanding 

advisers’ conflicts of interests when 

related persons offer ESG provider 

services, or when the adviser offers its 

own ESG provider services to others. 

We believe that this proposed 

expansion of Items 6 and 7 would 

provide us with a more complete 

picture of the ESG-related activities of 

an adviser and its related persons. The 

proposed reported information would 

enable us to identify affiliated financial 

service businesses in the evolving ESG 

advisory marketplace. The additional 

information on related persons would 

allow us, clients and other market 

participants to link disparate pieces of 

information that we have access to 

concerning an adviser and its affiliates 

as well as identifying whether the 

adviser controls the related person or 

vice versa. Therefore, it would allow the 

Commission to understand better 

advisers’ conflicts of interest in the field 

of emerging ESG providers and give 

clients and potential clients additional 

information about potential conflicts of 

interest to utilize in making their 

investment decisions. 

We request comment on all aspects of 

the proposed new reporting about any 

related person ESG provider and an 

adviser’s other business activities as an 

ESG provider, including the following 

items. 

185. Should we, as proposed, require 

both advisers registered or required to 

be registered with the Commission and 

exempt reporting advisers to report the 

proposed information in Items 6 and 7 

of Form ADV Part 1A (and the 

corresponding Schedules) about other 

business activities as an ESG provider or 

any related person that is an ESG 

provider, as both are currently required 

to complete these Items? Or, should we 

specify that only advisers registered or 

required to be registered with the 

Commission should complete this 

proposed addition to the Items? 

186. Should we, instead of our 

proposed amendments to Items 6 and 7, 

require advisers to disclose the 

proposed information only if the adviser 

actually uses the services of the related 

person ESG provider (or provides its 

ESG provider services to its own 

advisory clients)? If so, should we 

require this information only if the 

adviser uses the services in its advisory 

business to a material extent and/or to 

a threshold percentage of clients? If so, 

how should we define material and/or 

what threshold should we use, or 

should we impose a different type of 

reporting threshold for this information 

(and if so, what)? 

187. Are there other types of financial 

services providers in the ESG 

marketplace that we should specifically 

include in the lists contained in Items 

6 and 7? 

188. Is the information advisers need 

to complete the proposed additional 

questions contained in Section 7.A. 

readily available for related person ESG 

providers? Are there other questions not 

currently included in Section 7.A. that 

we should ask to determine additional 

conflicts of interest advisers face 

through ESG related persons or through 

conducing other business activities as 

an ESG provider? For example, should 

we require advisers to report whether a 

related person ESG provider provides 

other, non-ESG related, services? 

D. Compliance Policies and Procedures 

and Marketing 

Under the Advisers Act and 

Investment Company Act compliance 

rules, each adviser registered or 

required to be registered under the 

Advisers Act and each registered fund 

must have, and annually review, 

policies and procedures reasonably 

designed to prevent violations of 

applicable laws.226 The Advisers Act 

Compliance Rule requires advisers to 

consider their fiduciary and regulatory 

obligations under the Advisers Act and 

to formalize policies and procedures 

reasonably designed to address them.227

Similarly, the Company Act Compliance 

Rule requires a fund to adopt and 

implement compliance policies and 

procedures reasonably designed to 

prevent violations of the Federal 

securities laws by the fund, including 

policies and procedures providing for 

its oversight of compliance of its service 

providers, subject to approval by the 

fund’s board of directors.228 Among 

other things, the Commission has stated 

that advisers’ and funds’ compliance 

policies and procedures must address 

the accuracy of disclosures made to 

clients, investors and regulators, as well 

as portfolio management processes, 

including consistency of portfolios with 

investment objectives and disclosures 

by the adviser and/or fund.229 Funds 

and advisers must annually review the 

adequacy and effectiveness of such 

compliance policies and procedures.230

ESG strategies, including integration, 

ESG-focused and impact strategies, will 

necessarily require different levels and 

types of compliance policies and 

procedures. 

Our staff has observed a range of 

compliance practices, however, that do 

not appear to address effectively 

advisers’ incorporation of ESG factors 

into their advisory services.231 In light 

of these observations, as well as the 

comprehensive nature of our proposed 

ESG-related amendments to required 

disclosures, we believe it would be 

appropriate and beneficial to reaffirm 

existing obligations under the 

compliance rules when advisers and 

funds incorporate ESG factors. 

Specifically, as with all disclosures, 

advisers’ and funds’ compliance 

policies and procedures should address 

the accuracy of ESG-disclosures made to 

clients, investors and regulators. They 

should also address portfolio 

management processes to help ensure 

portfolios are managed consistently 

with the ESG-related investment 

objectives disclosed by the adviser and/ 

or fund. 

Advisers may wish to consider the 

following specific examples of effective 

ESG-related disclosure, policies, 

procedures and practices. If an adviser 

discloses to investors that it considers 

certain ESG factors as part of an 

integration strategy, the adviser’s 

compliance policies and procedures 

should be reasonably designed to ensure 

the adviser manages the portfolios 


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232 Id. 

233See 17 CFR 275.206(4)–8 (‘‘Advisers Act rule 

206(4)–8’’). 

234 17 CFR 275.206(4)–1 (‘‘Marketing Rule’’). See 

Final Rule: Investment Adviser Marketing, Release 

No. IA–5653 (Dec. 22, 2020) [86 FR 13024 (Mar. 5, 

2021)] (‘‘Marketing Rule Adopting Release’’). The 

amended rule became effective on May 4, 2021, and 

has an eighteen-month transition period between 

effectiveness and Nov. 4, 2022, when compliance is 

required for all firms. Prior to effectiveness of the 

amendments, and in some instances until Nov. 4, 

2022, the previous version of the rule prohibited 

any advertisement which contained any untrue 

statement of a material fact, or which was otherwise 

false or misleading. 

consistently with how the strategy was 

described to investors (e.g., actually 

considering the ESG factors in the way 

it says it considers them). If a registered 

fund discloses to investors that it 

adheres to a particular global ESG 

framework, its policies and procedures 

should include controls that help to 

ensure client portfolios are managed in 

accordance with that framework. 

Similarly, if an adviser uses ESG-related 

positive and/or negative screens on 

client portfolios, the adviser should 

maintain adequate controls to maintain, 

monitor, implement, and update those 

screens. Relatedly, if an adviser has 

agreed to implement a client’s ESGrelated investing guidelines, mandates, 

or restrictions, the adviser’s compliance 

policies and procedures should be 

designed to ensure these investment 

guidelines, mandates, or restrictions are 

followed. If an adviser discloses to 

investors that ESG-related proxy 

proposals will be independently 

evaluated on a case-by-case basis, the 

adviser should adopt and implement 

policies and procedures for such 

evaluation.232 In addition, if an adviser 

advertises to its clients that they will 

have the opportunity to vote separately 

on ESG-related proxy proposals, the 

adviser must provide such opportunities 

to its clients to the extent applicable and 

should maintain internal policies and 

procedures accordingly. 

In addition, current regulations seek 

to prevent false or misleading 

advertisements by advisers, including 

greenwashing, by prohibiting material 

misstatements and fraud. The provision 

at 17 CFR 275.206(4)–8 prohibits 

advisers to pooled investment vehicles 

from making false or misleading 

statements to existing or prospective 

investors in such pooled investment 

vehicles (e.g., investors in a registered 

investment company or private fund).233

The Marketing Rule prohibits an adviser 

from, directly or indirectly, distributing 

advertisements that contain any untrue 

statement of a material fact, or omitting 

to state a material fact necessary in 

order to make the statement made, in 

the light of the circumstances under 

which it was made, not misleading.234

Therefore, it generally would be 

materially misleading for an adviser 

materially to overstate in an 

advertisement the extent to which it 

utilizes or considers ESG factors in 

managing client portfolios. For example, 

if an adviser advertisement asserts that 

it applies a negative screen to oil and 

gas stocks in client portfolios, but it fails 

to apply such a screen in practice it 

would be materially misleading. 

Similarly, it generally would be 

materially misleading if an adviser 

stated in its marketing materials that it 

has substantially contributed to the 

development of specific governance 

practices, or reduction in carbon 

emissions, at its portfolio company, if 

the adviser’s actual roles in the 

development or reduction in emissions 

were limited or inconsequential. 

E. Compliance Dates 

We propose to provide a transition 

period after the effective date of the 

amendments, if adopted, to give funds 

and advisers sufficient time to comply 

with the ESG disclosure requirements 

for investment company companies and 

investment advisers. Accordingly, we 

propose that the compliance date of any 

adoption of this proposal for the 

following items would be one year 

following the effective date, which 

would be sixty days after the date of 

publication in the Federal Register: (i) 

the proposed disclosure requirements in 

prospectuses on Forms N–1A and N–2, 

(ii) the proposed disclosure 

requirements for UITs on Form N–8B2; 

(iii) the proposed regulatory reporting 

on Form N–CEN, and (iv) the proposed 

disclosure requirements and regulatory 

reporting on Form ADV Parts 1 and 2. 

We propose that the compliance date 

of any adoption of the proposed 

disclosures in the report to shareholders 

and filed on Form N–CSR would be 18 

months following the effective date, 

which would be sixty days after the date 

of publication in the Federal Register. 

Extending the compliance date for the 

proposed annual report further out from 

the proposed prospectus disclosure 

would allow funds to determine the 

right level of detail to provide in the 

proposed prospectus before 

implementing the result-oriented 

disclosure required by the proposed 

annual reports. It will also provide extra 

time for affected funds to develop any 

needed procedures for gathering data 

necessary to comply with the GHG 

metrics, proxy voting, and engagement 

reporting requirements if adopted. 

We request comment on the 

compliance dates outlined above. 

189. Should we, as proposed, provide 

a one-year transition for affected funds 

to come into compliance with the 

proposed prospectus and registrations 

statement requirements if adopted? 

Should the period be shorter or longer? 

Should the transition period be the 

same for open-end funds, closed-end 

funds, and UITs, as proposed? 

190. Should Integration Funds and 

ESG-Focused Funds have the same 

compliance period as one another, as 

proposed? 

191. Should we, as proposed, provide 

an 18-month transition for affected 

funds to come into compliance with the 

proposed disclosure requirements in the 

annual report? Should the proposed 

annual report requirements have 

different transition periods from one 

another? Specifically, do funds need 

more or less time than proposed to 

gather data to produce (i) the required 

disclosures for Impact Fund objectives, 

(ii) voting and engagement metrics, or 

(iii) GHG metrics? 

192. Is six months, as proposed, the 

appropriate amount of time between the 

effective date of the proposed 

prospectus disclosures and the 

proposed disclosures in the report to 

shareholders for affected funds? 

193. Should we, as proposed, provide 

a one-year transition period for affected 

funds to come into compliance with the 

proposed N–CEN Reporting 

requirements? Should the proposed N– 

CEN requirements have the same 

transition period as the proposed 

prospectus requirements, as proposed? 

194. Should we, as proposed, provide 

a one-year transition for affected 

advisers to come into compliance with 

the proposed disclosure and reporting 

requirements in Form ADV Parts 1 and 

2? Should the period be shorter or 

longer? Should the transition period, as 

proposed be the same for ADV Parts 1 

and 2? 

III. Economic Analysis 

A. Introduction 

The Commission is mindful of the 

economic effects, including the costs 

and benefits, of the proposed 

amendments. Section 2(c) of the 

Investment Company Act provides that 

when the Commission is engaging in 

rulemaking under the Act and is 

required to consider or determine 

whether an action is consistent with the 

public interest, the Commission shall 

also consider whether the action will 

promote efficiency, competition, and 

capital formation, in addition to the 

protection of investors. Similarly, 


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36698 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

235See supra section I.A.3. 236With respect to open-end fund registration 

statements filed on Form N–1A, only those 

disclosures included in Items 2–4 of Form N–1A 

(i.e., the prospectus risk/return summary, which 

includes a discussion of investment objectives, 

principal investment strategies, and principal risks) 

are required to be tagged in Inline XBRL. See 

General Instruction C.3.g.i of Form N–1A; 17 CFR 

232.405(b)(2)(i); Inline XBRL Adopting Release, 

supra footnote 185. Similarly, for registered closedend funds and BDCs that file on Form N–2, the 

discussion of investment strategies and principal 

risks, as well as other specified prospectus 

disclosures, will be required to be tagged in Inline 

XBRL no later than Feb. 2023. See General 

Instruction I.2 of Form N–2; 17 CFR 

232.405(b)(3)(iii); Closed-End Fund Offering Reform 

Adopting Release, supra footnote 186. Unit 

investment trust registration statements filed on 

Forms N–8B–2 and S–6 are not currently subject to 

tagging requirements. 

237See General Instruction I.3 of Form N–2. 

238Registered advisers must file brochures and 

amendments electronically through the Investment 

Adviser Registration Depository (‘‘IARD’’) system as 

a text-searchable (non-machine readable) PDF. See 

17 CFR 275.203(a)(1); General Instruction 5 of Form 

ADV Part 2. 

239See Investment Company Names, Investment 

Company Act Release No. 24828 (Jan. 17, 2001) [66 

FR 8509 (Feb. 1, 2001)]. 

240See supra section II.C. Form N–CEN and Form 

ADV Part 1A are each submitted using an XMLbased structured data language specific to that 

Form. 

241See supra section II.C.1. 

242These estimates are based on Form N–CEN 

filings, Item C.19, as of Dec. 31, 2020. 

243The estimates for BDCs are based on Forms 

10K/10Q filings and Morningstar Direct data as of 

Dec. 31, 2020. The estimates for UITs are based on 

Form S–6 as of Dec. 31, 2021. As insurance 

companies’ separate accounts, which are organized 

as UITs, would not be subject to the proposed rules, 

the estimate mentioned above would not include 

them. See supra footnote 98 (for more information). 

whenever the Commission engages in 

rulemaking and is required to consider 

or determine whether an action is 

necessary or appropriate in the public 

interest, section 202(c) of the Advisers 

Act requires the Commission to 

consider, in addition to the protection of 

investors, whether the action would 

promote efficiency, competition, and 

capital formation. The analysis below 

addresses the likely economic effects of 

the proposed amendments, including 

the anticipated and estimated benefits, 

costs, and the effects on efficiency, 

competition, and capital formation. The 

Commission also discusses the potential 

economic effects of certain alternatives 

to the approaches taken in this proposal. 

Many of the benefits and costs 

discussed below are difficult to 

quantify. For example, it is difficult to 

quantify the efficiency benefits 

produced from reducing investors’ 

search costs and the associated welfare 

gains from better alignments between 

investors’ investment objectives and 

selected ESG funds or advisers. Also, in 

some cases, data needed to quantify 

these economic effects are not currently 

available and the Commission does not 

have information or data that would 

allow such quantification. For example, 

we anticipate the enhanced 

transparency and consistency in ESG 

disclosures would provide more 

complete and accurate information 

available to investors and prospective 

investors about ESG investing. However, 

we lack data that would allow us to 

quantify the value of more complete 

information in ESG disclosures, which 

varies across investors and also depends 

on the degree to which any particular 

investor may derive non-pecuniary 

benefits from ESG investing. While the 

Commission has attempted to quantify 

economic effects where possible, much 

of the discussion of the economic effects 

is qualitative in nature. The 

Commission seeks comment on all 

aspects of the economic analysis, 

especially any data or information that 

would enable a quantification of the 

proposal’s economic effects. 

B. Economic Baseline 

The economic baseline against which 

we measure the economic effects of this 

proposal, including its potential effects 

on efficiency, competition, and capital 

formation, is the state of the world as it 

currently exists. 

1. Current Regulatory Framework 

As discussed above, funds and 

registered advisers are subject to 

disclosure requirements concerning 

their investment strategies.235 Funds 

must provide disclosures in their 

prospectus including material 

information on investment objectives, 

strategies, risks, and governance, and a 

discussion of fund performance in their 

annual reports. Certain of these fund 

prospectus disclosures are subject to 

Inline XBRL tagging requirements, 

while others are not.236 Fund annual 

reports are only subject to Inline XBRL 

tagging requirements to the extent they 

are filed by seasoned closed-end funds 

and include tagged prospectus 

disclosures incorporated into their Form 

N–2 registration statements by 

reference.237 Registered advisers are 

required to provide information about 

their advisory services in narrative 

format on Form ADV Part 2 describing 

their firm’s methods of analysis and 

investment strategies, fees, conflicts, 

and personnel; these disclosures are not 

tagged in Inline XBRL or any other 

machine-readable data language.238

General disclosures about ESG-related 

investment strategies would fall under 

these disclosure requirements, but there 

are no specific requirements about what 

a fund or adviser following an ESG 

strategy must include. The names rule 

requires that a fund adopt a policy to 

invest at least 80 percent of the value of 

its assets in the type of investment 

suggested by its name and, although 

current fund practices are mixed, many 

funds adopt such a policy when the 

fund’s name indicates that the fund’s 

investment decisions incorporate one or 

more ESG factors.239 Further, funds and 

advisers (both registered investment 

advisers and exempt reporting advisers) 

are currently not required to report to 

the Commission ESG-specific 

information on Forms N–CEN and Form 

ADV Part 1A.240 Rather, Form N–CEN 

currently requires any fund, including 

an ESG fund, that tracks the 

performance of an index to identify 

itself as an index fund and provide 

certain information about the index,241

but Form N–CEN does not require 

reporting on funds’ ESG-specific 

strategies and processes. Similarly, 

registered advisers and exempt 

reporting advisers are required to report 

certain information about their advisory 

business on Form ADV Part 1A, but are 

currently not required to report uses of 

ESG factors in their advisory business 

and investment strategies, including 

with respect to an adviser’s reported 

private funds and separately managed 

accounts. 

2. Affected Parties 

(a) Registered Investment Companies 

and BDCs 

As of the end of December 2020, there 

were 13,248 open-end funds reporting 

an aggregate $30,013 billion in average 

total net assets and 691 closed-end 

funds reporting an aggregate $305 

billion in average total net assets.242

There also were 94 BDCs reporting an 

aggregate $66 billion in total net assets 

and 5,818 UITs with $1,116 billion in 

total net assets.243

The proposed rules would define 

categories of funds: Integration, ESGFocused, and Impact Funds (a subset of 

ESG-Focused funds that seek to achieve 

a specific ESG impact or impacts), and 

provide specific requirements for each 

category. While many funds provide 

information about how they consider 

ESG factors in their prospectus 

documents or shareholder reports, 

information about ESG factors at the 

fund level is not consistently disclosed. 

As a result, it is difficult to determine 

accurately how many funds would fall 

into each category. 

Determining the number of 

Integration Funds is particularly 

difficult, as these funds only consider 

ESG factors as part of a broader 


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244See Morningstar Comment Letter attachment, 

Morningstar US Sustainable Fund Landscape 2020. 

This report, however, noted that those firm-level 

commitments have yet to make a significant impact 

at the fund level. 

245The estimates for closed-end funds are based 

on an analysis of Form N–PORT filings as of Nov. 

30, 2021. The estimates for UITs are based on an 

analysis of Morningstar Direct data as of Dec. 31, 

2020. 

246The estimated number of funds that have an 

ESG strategy is based on analysis of mutual funds 

and ETFs with names containing ‘‘ESG,’’ ‘‘Clean,’’ 

‘‘Environ(ment),’’ ‘‘Impact,’’ ‘‘Responsible,’’ 

‘‘Social,’’ or ‘‘Sustain(able).’’ This analysis is based 

on Morningstar data as of July 31, 2021. Some 

mutual funds and ETFs may not have fund names 

containing these ESG-related terms, although they 

incorporate ESG factors in their investment 

strategies. In this respect, this estimate may 

undercount the number of funds with ESG 

strategies, however, some funds with names 

containing ESG terms may consider ESG factors, 

along with many other factors, in their investment 

decisions. In this respect, this estimate may then 

over count the number of funds with ESG strategies. 

See also comment letter from Morningstar to Chair 

Gensler (June 9, 2021) in response to Acting Chair 

Allison Lee’s Climate RFI attaching Sustainable 

Funds U.S. Landscape Report: More Funds, More 

Flows, and Impressive Returns in 2020, 

Morningstar Manager Research (Feb. 10, 2021) 

available at https://www.sec.gov/comments/ 

climate-disclosure/cll12-8899329-241650.pdf. In 

this report, Morningstar estimated there were 392 

sustainable funds in 2020, following its own 

definition of sustainable funds. 

247This is somewhat consistent with other 

analysis that examined the share of global assets 

under management by sustainable funds relative to 

the overall market capitalization. Although this 

share has been generally in an upward trend, the 

share was approximately 2.3 percent in 2020. See 

International Monetary Fund Global Financial 

Stability Report: Markets in the time of Covid-19, 

Climate Change: Physical Risks and Equity Price 

Chapter 5 (Apr. 2020). Another paper estimated 

about 3 percent of U.S. mutual funds were 

sustainable funds. In this paper, sustainable funds 

were classified via pattern search on mutual funds 

names. See Bertrand Candelon, Jean-Baptiste. 

Hasse, Quentin. Lajaunie, ESG-Washing in the 

Mutual Funds Industry? From Information 

Asymmetry to Regulation, Risks, 9, 199 (2021) 

(‘‘Candelon’’). These studies estimate the size of 

funds likely implementing ESG-Focused strategies 

(in other words, make ESG factors a central feature 

of their investment strategies). The number and 

asset size of ESG-integration funds, funds that 

consider ESG factors along with other factors, 

would be larger than those of ESG-Focused Funds. 

248Our analysis of Morningstar data is consistent 

with a trend observed in a Morningstar report, 

Sustainable Funds U.S. Landscape Report: More 

Funds, More Flows, and Impressive Returns in 

2020, Morningstar Manager Research (Feb. 10, 

2021) (This report was attached in a comment letter 

from Morningstar to Chair Gensler (June 9, 2021)), 

available at https://www.sec.gov/comments/ 

climate-disclosure/cll12-8899329-241650.pdf. 

249Form N–PORT is filed by a registered 

management investment company, or an exchangetraded fund organized as a unit investment trust, or 

series thereof (‘‘Fund’’). A money market fund 

(‘‘money market fund’’) under rule 2a–7 under the 

Investment Company Act of 1940 (15 U.S.C. 80a) 

(‘‘Act’’) (17 CFR 270.2a–7) or a small business 

investment company (‘‘SBIC’’) registered on Form 

N–5 (17 CFR 239.24, 274.5) are excluded. The 

analysis included 321 funds with names containing 

‘‘Sustainable,’’ ‘‘Responsible,’’ ‘‘ESG,’’ ‘‘Climate,’’ 

‘‘Carbon,’’ or ‘‘Green’’ and used data as of Sept. 

2021. 

250Under the proposal, an ‘‘ESG-Focused Fund’’ 

would mean a fund that focuses on one or more 

ESG factors by using them as a significant or main 

consideration in: (1) selecting investments, or (2) its 

engagement strategy with the companies in which 

it invests. One ESG provider, MSCI, defines funds 

with an ESG Policy as funds that have adopted 

investment policies that consider some ESG criteria. 

It is not clear how significantly ESG criteria are 

used. 

251This is consistent with other studies 

suggesting inconsistencies across ESG providers in 

general. See infra (for more detailed discussion). 

252MSCI identifies funds with an ESG Policy. The 

funds with an ESG Policy are defined as funds that 

have adopted investment policies that consider 

some ESG criteria, including; environmental, social 

or governance concerns, religious beliefs, inclusive 

employee policies, or environmentally friendly 

investments. The designation is attributed to a fund 

based on what is stated in the fund’s investment 

strategy in the fund prospectus. 

investment strategy. According to one 

commenter, today virtually all asset 

managers have incorporated ESG 

considerations to some degree, or have 

plans to do so, across their investment 

strategies.244

We do, however, attempt to estimate 

the number of funds that the proposed 

rule would consider ESG-Focused 

Funds (including Impact Funds). We do 

this by using the fund name as a proxy 

for the fund’s investment strategy. Based 

on an analysis of fund names, we 

estimate 21 closed-end funds and 35 

UITs had names that imply an ESG 

strategy.245 We estimate that there were 

208 open-end mutual funds with $114 

billion in net assets and 125 ETFs with 

$250 billion in net assets, and thus a 

total of 333 open-end funds with $364 

billion in net assets, with fund names 

suggesting an ESG focused strategy as of 

July 2021.246 Further, we estimate the 

share of funds with names suggesting an 

ESG focused strategy were about 3 

percent of the total number of mutual 

funds and ETFs, and represented 

approximately 1 percent of total assets 

at the end of 2020.247

ESG-Focused mutual funds and ETFs 

have recently seen sharp increases in 

net flows, leading to substantial 

increases in assets under management. 

As summarized in table 1, net flows rose 

by 61 percent in 2018, 252 percent in 

2019, and 472 percent in 2020. Flows 

into ESG-Focused ETFs experienced 

even more pronounced growth, rising by 

52 percent in 2018, 298 percent in 2019, 

and 680 percent in 2020.248

TABLE 1—ANNUAL GROWTH RATE OF NET-FLOWS TO FUNDS WITH ESG-FOCUSED STRATEGIES

Fund type 2018 2019 2020 

Mutual Funds ....................................................................................................................................................... 82% 185% 49% 

ETFs .................................................................................................................................................................... 52 298 680 

Mutual Funds and ETFs ...................................................................................................................................... 63 252 472 

To understand the asset holdings of 

the funds whose names imply an ESG 

strategy, we analyzed data from Form 

N–PORT filings.249 According to this 

analysis on Form N–PORT filings, 

corporate equities represent 83 percent 

of assets held by these funds, while 

corporate debt represents the second 

largest investment type, accounting for 

6 percent of assets held by these funds. 

Above, we estimated the number of 

funds that the proposed rules would 

consider ESG-Focused Funds, using the 

name as a proxy for the investment 

strategy. Additionally, we reviewed 

databases from several ESG providers 

and how they classify funds that 

consider ESG factors in their investment 

strategy or approach. Although it is 

difficult to precisely map the scope of 

‘‘ESG-Focused Funds’’ onto various 

definitions for ESG funds as employed 

by ESG providers, in general, it 

appeared that ESG providers use broad 

definitions to classify ESG funds. This 

means that not all funds identified by 

ESG providers as ESG funds would be 

considered ESG-Focused Funds under 

the proposal. Some funds following ESG 

principles as indicated by ESG 

providers may be considered Integration 

Funds under the proposal.250

Furthermore, we found variations in 

funds classified as ESG funds across 

ESG providers. As a result, a fund 

classified as an ESG fund by one ESG 

provider is not necessarily classified as 

an ESG fund by another provider.251 For 

instance, one ESG provider identified 

781 mutual funds and ETFs as ESG 

funds as of February 2022,252 while 

another ESG provider identified 423 

mutual funds and ETFs as ESG funds as 


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253Morningstar identifies sustainable investment 

funds—ESG funds overall. These ESG funds overall 

are defined as funds that incorporate ESG 

principles into investment process or through 

engagement activities. 

254Bloomberg identifies funds with certain ESG 

attributes. For purposes of this review, we 

considered active funds with the following general 

attribute(s): ESG, Clean Energy, Climate Change, 

Environmentally Friendly, or Socially Responsible. 

255According to the US SIF, sustainable investing 

assets are managed using investment strategies such 

as ESG incorporation, shareholder advocacy, and 

overlapping strategies. See US SIF, Sustainable 

Investing Basics (2020), available at https://

www.ussif.org/sribasics (‘‘US SIF’’) and the 

executive summary of the Report on US Sustainable 

and Impact Investing Trends at https://

www.ussif.org/files/US%20SIF%20

Trends%20Report%202020

%20Executive%20Summary.pdf. 

256Other issues include ‘‘anti-corruption’’ ($2.44 

trillion), ‘‘board issue’’ ($2.39 trillion), ‘‘sustainable 

natural resources/agriculture’’ ($2.38 trillion), 

‘‘executive pay’’ ($2.22 trillion). 

257See Philipp Krueger, Zacharias Sautner, and 

Laura T. Starks, The Importance of Climate Risks 

for Institutional Investors, 33 (3) Rev. Fin. Stud. 

1067–1111 (2020) (‘‘Krueger’’). 

258These estimates are based on an analysis of 

Form ADV Schedule D filings as of Dec. 31, 2020. 

259We identified private funds with names 

containing ‘‘ESG,’’ ‘‘Clean,’’ ‘‘Environ(ment),’’ 

‘‘Impact,’’ ‘‘Responsible,’’ ‘‘Social,’’ or 

‘‘Sustain(able)’’ as having an ESG focus. 260These estimates are based on Form ADV 

Schedule D filings as of Dec. 31, 2020. Some private 

funds have two different investment advisers, a RIA 

and an ERA. Those private funds could be doublecounted, because the private funds are reported by 

the RIA and also by the ERA. Feeder funds who 

report a master fund on Form ADV are removed to 

avoid double-counting. 

261We identified private funds with names 

containing ‘‘ESG,’’ ‘‘Clean,’’ ‘‘Environ(ment),’’ 

‘‘Impact,’’ ‘‘Responsible,’’ ‘‘Social,’’ or 

‘‘Sustain(able)’’ as having an ESG focus. One survey 

of global investors and their advisors found that 51 

percent of general partners (GPs) from North 

America used an ESG risk factor framework when 

evaluating potential portfolio companies in 2021. 

The same survey reported that 45 percent of GPs 

from North America required portfolio companies 

to focus on financially material ESG factors. 

Examining only Venture Capitals (VCs), 49 percent 

of the global VC GP respondents have implemented 

the consideration of sustainable practices at the 

portfolio company level. Some of these GP 

respondents may be considered implementing 

Integration strategies, not necessarily Focused 

strategies. Furthermore, these figures might be 

biased upward as the individuals interested in ESG 

related issues are more likely to respond to this 

survey, as acknowledged in the report. See 

PitchBook, Sustainable Investment Survey 2021 

(Sept. 17, 2021). According to another report, 645 

impact funds closed between 2006 and Mar. 2021 

in the North America, which is somewhat 

comparable to our estimated number of private 

funds with ESG-Focused strategies. See PitchBook, 

Analyst Note: Impact Funds by Reason and Region 

(July 27, 2021). 

262This private fund collaboration group has 

aligned on an initial core set of six ESG categories: 

greenhouse gas emissions, renewable energy, board 

diversity, work-related injuries, net new hires, and 

employee engagement. See Private Equity Industry’s 

First-Ever ESG Data Convergence Project 

Announces Milestone Commitment of Over 100 LPs 

and GPs, Carlyle (Jan. 28, 2022), available at 

https://www.carlyle.com/media-room/news-releasearchive/private-equity-industrys-first-ever-esg-dataconvergence-project-announces-over-100-lps-gps; 

see also ESG Data Convergence Project, Institutional 

Limited Partners Association, available at https://

ilpa.org/ilpa_esg_roadmap/esg_data_convergence_

project/. 

263These estimates are based on Form ADV 

filings as of Dec. 31, 2020. 264Based on reporting from Form ADV Schedule 

D it includes private funds ‘‘ESG,’’ ‘‘Clean,’’ 

‘‘Environ(ment),’’ ‘‘Impact,’’ ‘‘Responsible,’’ 

‘‘Social,’’ or ‘‘Sustain(able)’’ in its name. Some 

private funds may not have fund names containing 

these ESG-related words, although they focus on 

ESG factors in their investment strategies. In this 

regard, the estimate would undercount private 

funds focusing on ESG factors, however, some 

private funds with names containing ESG terms 

may consider ESG factors equally with many other 

factors in their investment decisions. In this 

respect, this estimate may overestimate the number 

of private funds focusing on ESG factors. 

265The limitations discussed in footnote above 

are also applied here. Furthermore, some private 

funds obtain advice both from registered investment 

advisers and ERAs. 

of December 2021.253 Another ESG 

provider identified 425 mutual funds 

and ETFs as funds with certain ESG 

attributes as of February 2022.254 A 

combined total of 1,028 mutual funds 

and ETFs were classified as ESG funds 

by at least one of the three ESG 

providers. 

According to one report, fund 

managers incorporate environmental, 

social, and governance factors fairly 

evenly, but within the broad topic of 

environmental factors the specific issues 

considered are more concentrated, 

while for social and governance factors 

the specific issues incorporated in their 

investment analysis and decisionmaking processes are much more 

diverse.255 In particular, ‘‘climate 

change/carbon’’ was by a wide margin 

the most commonly listed specific ESG 

issue considered by fund managers in 

asset-weighted terms. $4.18 trillion in 

assets fell under fund managers who 

listed this criterion, a growth of 39 

percent from 2018 to 2020, and an 

amount in 2020 that is 71% more than 

any other specific issue.256 The 

particular prevalence of climate change/ 

carbon-related factors being 

incorporated in investment analysis and 

decision-making processes by fund 

managers also aligns with survey-based 

evidence from institutional investors.257

(b) Private Funds 

As of the end of December 2020, 

registered investment advisers reported 

41,938 private funds with a combined 

gross asset value of $17,585 billion.258

We estimate that 243 of these funds, or 

fewer than one percent, had names 

suggesting ESG investments.259 Exempt 

reporting advisers (ERAs) reported to 

advise 23,053 private funds with a 

combined gross asset value of $5,679 

billion.260 We estimate that 144 of these 

funds, or fewer than one percent, had 

names suggesting ESG investments.261

In 2021, a number of private funds 

launched a collaboration project to 

standardize ESG metrics, including 

GHG emissions, and provide a 

mechanism for comparative reporting 

for the funds. This voluntary reporting 

framework in the private fund industry 

now represents $8.7 trillion in assets 

under management and over 1,400 

underlying portfolio companies as of 

January 2022.262

(c) Investment Advisers 

As of December 2020, 13,812 

registered investment advisers (‘‘RIAs’’) 

oversaw over $110 trillion in regulatory 

assets under management (‘‘RAUM’’). 

As of December 2020, we identified 

10,120 RIAs (73 percent) that provided 

advisory services to SMA clients, 

managing about $43 trillion in assets.263

Currently, investment advisers describe 

their significant investment strategies or 

analytical methods including 

information about any incorporation of 

ESG factors in Form ADV Part 1A and 

Part 2A (brochures). However, ESG 

factors are not consistently disclosed 

across investment advisers, and 

practices regarding ESG disclosures vary 

substantially. 

As of December 2020, approximately 

one in three RIAs, or 4,949 RIAs total, 

provided advisory services to private 

funds and oversaw nearly $18 trillion in 

regulatory assets. Of these 4,949 RIAs, 3 

percent advised private funds with 

names containing ESG terms.264

According to Form ADV Part 1A filings, 

there existed 4,791 exempt reporting 

advisers (ERAs). Approximately 2 

percent of ERAs provided advisory 

services to private funds with names 

containing ESG terms.265

3. Investor Interest in ESG Funds 

In this section, we discuss various 

comment letters, reports, and academic 

articles examining investors’ interest in 

ESG funds and investing behaviors of 

investors in such funds. The definitions 

of ESG funds and ESG investing used in 

these comment letters, reports and 

articles vary and generally do not line 

up exactly with the definitions of ESG 

fund categories under the proposed 

rules. In the discussion below, however, 

we use the terminologies as defined in 

these comment letters, reports, and 

articles. Therefore, the observations 

discussed below may not translate 

precisely to the set of funds subject to 

the proposed rules. 

(a) Evidence From Investor Surveys 

A review of several surveys suggest 

that investor demand for ESG funds and 

investments has increased for several 


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266See Amir Amel-Zadeh, and George Serafeim, 

Why and How Investors Use ESG Information: 

Evidence from a Global Survey, Harvard Business 

School (Working Paper No. 17–079) (Feb. 2017). 

This is a survey of senior investment professional 

at large global financial institutions. In this survey, 

33% of U.S. investment professionals responded 

that they consider ESG information because of 

growing demands from clients or stakeholders. 

267See Robert G. Eccles, Mirtha D. Kastrapeli, and 

Stephanie J. Potter, How to Integrate ESG into 

Investment Decision-Making: Results of a Global 

Survey of Institutional Investors, 29(4) J. Applied 

Corporate Fin. 125 (2017). Similarly, a GAO report 

found that most institutional investors interviewed 

for the report stated that they seek ESG information 

to better understand risks that could affect 

companies’ long-term financial performances. See 

U.S. Gov’t Accountability Office, Report to the 

Senator Mark Warner, Public Companies: 

Disclosure of Environmental, Social, and 

Governance Factors and Options to Enhance Them 

(July 2020), available at https://www.gao.gov/ 

assets/gao-20-530.pdf. 

268See Krueger, supra footnote 257. While this 

survey was conducted to institutional investors 

globally, U.S. institutional investors were most 

represented in the survey. In addition to the 

protection of investor’s own reputation (30%), 

institutional investors cited ‘‘moral/ethical 

obligation (27.5%),’’ ‘‘legal obligation or fiduciary 

duty (27%),’’ ‘‘beneficial to investment returns 

(25%),’’ and ‘‘reduction of overall portfolio risks 

(24%),’’ as reasons why they incorporate climate 

risks in their investment process. 

269See Consumer Federation of America 

Comment Letter; see also Cerulli Associates, Global 

Retail Investors and ESG: Responsible Investing 

Converges with Accelerated Environmental and 

Social Imperatives (Apr. 2021), available at https:// 

info.cerulli.com/rs/960-BBE-213/images/2021_ESG_

White_Paper.pdf. 

270See GlobeScan, Retail Investors’ Views of ESG 

(2021), available at https://

3ng5l43rkkzc34ep72kj9as1-wpengine.netdnassl.com/wp-content/uploads/2021/12/GlobeScanRadar-2021-Retail_Investors_Views_of_ESG-FullReport.pdf. 

271 Id. 

272See Cerulli Associates, Global Retail Investors 

and ESG: Responsible Investing Converges with 

Accelerated Environmental and Social Imperatives 

(Apr. 2021), available at https://info.cerulli.com/rs/ 

960-BBE-213/images/2021_ESG_White_Paper.pdf. 

In this white paper, millennials are defined as 

individuals with ages between 24 and 39 in 2020, 

while Generation Z refers to individuals with age 

23 or younger. Baby boomers refer to individuals 

with ages between 56 and 74 in 2020. In this 

survey, 84% (70%) of asset managers anticipated 

high demands for ESG investing from millennial 

clients (Generation Z) in the next two to three years. 

In contrast, only 14% of asset managers anticipated 

high demands for ESG investing from baby 

boomers. 

273See Consumer Federation of America 

Comment letter; see also Cerulli Associates, Global 

Retail Investors and ESG: Responsible Investing 

Converges with Accelerated Environmental and 

Social Imperatives (Apr. 2021), available at https:// 

info.cerulli.com/rs/960-BBE-213/images/2021_ESG_

White_Paper.pdf. 

274See US SIF Report on US Sustainable and 

Impact Investing Trends 2020 (2020), available at 

https://www.ussif.org/files/ 

US%20SIF%20Trends%20

Report%202020%20Executive%20Summary.pdf. 

275See also section I.A.1. 

276See ICI Comment Letter. 

277See Morningstar Comment Letter (attachment), 

Morningstar US Sustainable Fund Landscape 

(2020). 

278See Morningstar Comment Letter (attachment), 

Morningstar US Sustainable Fund Landscape 

(2020). See supra footnote 283. (For detailed 

discussion about the definition of ‘‘sustainable 

funds.’’) 

279Most of these funds also changed their names 

to accurately reflect changes in investment 

strategies as well. 

280See Morningstar Comment Letter attachment, 

Morningstar U.S. Sustainable Fund Landscape 

(2020). According to this report, while many funds 

mention ESG factors briefly somewhere in their 

prospectus, often in a less-prominent ‘‘Additional 

Information’’ section, the sustainable funds make 

their commitment clear and prominent in their 

prospectus, often in ‘‘Principal Investment 

Strategies’’ section of the fund’s prospectus with 

enough details. 

281See Morningstar Comment Letter attachment, 

Morningstar U.S. Sustainable Fund Landscape 

(2020). 

282See Samuel M. Hartzmark and Abigail B. 

Sussman, Do Investors Value Sustainability? A 

Natural Experiment Examining Ranking and Fund 

Flows, 74 (6) J. Fin. 2789, 2789–2837 (2019). 

Investors’ responses were mostly concentrated in 

two extreme rating categories, the lowest and the 

highest, and investors responded more to discrete 

measures rather than continuous measures. All 

these are consistent with literature finding the 

importance of salient information in investment 

decisions. 

283This is the terminology used in this and other 

studies. While there are some differences across 

Continued 

reasons and such investor demand is 

expected to continue to grow. In one 

survey, a majority (56 percent) of U.S. 

investment professionals responded that 

they consider ESG information in 

investment decisions because ESG 

information is material to investment 

performance.266 Another survey found 

that 62 percent of institutional investors 

cited focusing on long-term investment 

outcomes as a reason for ESG 

investing.267 According to another 

survey, institutional investors 

mentioned protecting their own 

reputations as a reason why they 

incorporate climate risks in their 

investment process.268

Survey evidence suggests that retail 

investors are also interested in ESG 

investing. One survey found 83 percent 

of U.S. retail investors reported a 

preference for investing in companies 

that are leaders in environmentally 

responsible practices.269 In another 

survey, a majority (51 percent) of U.S. 

retail investors said the ESG-related 

performance of the company influenced 

their investment decisions.270 Moreover, 

three-quarters of U.S. retail investors 

reported that they have increased or 

plan to increase their investment in ESG 

investments.271 In addition, U.S. asset 

managers forecast high demand for such 

investments in the next two to three 

years, particularly among younger 

investors.272 Should these younger 

investors retain their interest in ESG 

investing, this suggests that assets in 

ESG strategies may grow as assets are 

gradually transferred from the older to 

the younger generation.273

(b) Evidence From Mutual Fund Flows 

In addition to evidence from surveys, 

investors are displaying a demand for 

investment strategies focusing on ESG. 

In particular, compared to 25 years ago, 

relatively more investment dollars are 

now directed to sustainable investing 

assets.274 Similarly, several commenters 

suggested that the number of ESG funds 

has increased over time.275 For example, 

one commenter stated that the number 

of ESG funds have increased by 18 

percent for the past 15 months, from 

December 2019 to March 2021.276

According to another commenter, the 

number of sustainable open-end funds 

and ETFs has increased nearly fourfold 

over the past ten years.277 At least 30 

new sustainable funds have been 

launched each year since 2015, with 71 

new fund launches in 2020. As a result, 

a total of 244 new sustainable funds 

have been launched since 2015.278

Additionally, 58 existing funds, 25 

funds in 2020 alone, have changed their 

investment strategies to become 

sustainable funds since 2015.279

In addition to a proliferation in the 

number of ESG-related funds, increased 

investor demand for ESG-related 

investments can be seen in the increase 

in fund flows toward ESG-related 

mutual funds relative to the fund flows 

toward other mutual funds. According 

to a comment letter, in 2020, net flows 

to sustainable funds reached $51.1 

billion ($17.4 billion to sustainable 

open-end funds and $33.7 billion to 

sustainable ETFs).280 Net flows to 

sustainable funds have steadily 

increased since 2016, but most notably 

since 2019. In 2016, 2017, and 2018, net 

flows to sustainable funds were around 

$5 billion per year. In 2019, net flows 

reached $21.4 billion. In 2020, overall 

open-end funds have suffered net 

outflows of $289 billion. Even then, 

sustainable open-end funds have still 

received net inflows of $17.4 billion.281

Investor interest in ESG funds is 

further consistent with academic studies 

which show that flows in these funds 

respond to ESG-related information. For 

example, one empirical study on mutual 

fund flows found that both retail and 

institutional mutual fund investors 

responded to sustainability reports: 

mutual funds that received the highest 

sustainability rating from a third-party 

ESG provider have experienced 

significant net inflows, whereas funds 

that received the lowest sustainability 

rating from the same ESG provider have 

experienced substantial net outflows.282

Another study found that ‘‘socially 

responsible investment’’ (SRI) 283 funds 


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studies, socially responsibility investment refers to 

an investment process that integrates 

environmental, social and corporate governance 

considerations in investment decision making. 

284See Je ̨drzej Bia5kowski and Laura T. Starks, 

SRI Funds: Investor Demand, Exogenous Shocks 

and ESG Profiles, University of Canterbury, 

Department of Economics and Finance (Working 

Papers in Economics 16/11) (2016). Authors 

examined SRI funds that are members of US SIF 

and thus listed on US SIF’s website. These SRI 

funds were found to receive higher inflows than 

other SRI funds or non-SRI funds. 

285See also Je ̨drzej Bia5kowski and Laura T. 

Starks, SRI Funds: Investor Demand, Exogenous 

Shocks and ESG Profiles, University of Canterbury, 

Department of Economics and Finance (Working 

Papers in Economics 16/11) (2016). 

286See Luc Renneboog, Jenke ter Horst, & Chendi 

Zhang, Is Ethical Money Financially Smart? 

Nonfinancial Attributes and Money Flows of 

Socially Responsible Investment Funds, 20 J. Fin. 

Intermediation 562, 562–588 (2011). 

287See Lubos Pastor, Robert F. Stambaugh, and 

Lucian A. Taylor, Sustainable Investing in 

Equilibrium, 142 J. Fin. Econ. 550, 550–571 (2021). 

Sadok El Ghoul and Aymen Karoui, Does Corporate 

Social responsibility Affect Mutual Fund 

Performance and Flows? 77 (C) J. Banking & Fin. 53, 

53–63 (2017). See also Je ̨drzej Bia5kowski and Laura 

T. Starks, SRI Funds: Investor Demand, Exogenous 

Shocks and ESG Profiles, University of Canterbury, 

Department of Economics and Finance (Working 

Papers in Economics 16/11) (2016); Karen L. 

Benson and Jacquelyn E. Humphrey, Socially 

Responsible Investment Funds: Investor Reaction to 

Current and Past Returns, 32 (9) J. Banking & Fin. 

1850, 1850–1859 (2008); Luc Renneboog, Jenke ter 

Horst, & Chendi Zhang, Socially Responsible 

Investments: Institutional Aspects, Performance, 

and Investor Behavior, 32 (9) J. Banking & Fin. 

1723, 1723–1742 (2008). 

288See Arno Riedl and Paul Smeets, Why Do 

Investors Hold Socially Responsible Mutual Funds? 

72 J. Fin. 2505, 2505–2550 (2017). 

289See Brad M. Barber, Adair Morse and Ayako 

Yasuda, Impact Investing, 139 (1) J. Fin. Economics 

162, 162–185 (2021). In this paper, 159 funds were 

considered Impact Funds by applying a strict a 

criterion that the fund must state dual objectives— 

investments made with the intention to generate 

positive, measurable social and environmental 

impact alongside a financial return—in its 

motivation. Even though Impact Funds on average 

do not beat the market ex post, the impact investors 

invest in Impact Funds, thus suggesting that main 

results mostly reflect investors’ preferences rather 

than investors’ inaccurate beliefs that Impact Funds 

would outperform non-Impact Funds. 

290See Krueger, supra footnote 257. In this study, 

institutional investors include asset managers 

(23%), banks (22%), pension funds (17%), 

insurance companies (15%), mutual funds (8%), 

and other institutions (15%). 

291 Id. See also Joseph A. McCahery, Zacharias 

Sautner, and Laura T. Starks, Behind the Scenes: 

The Corporate Governance Preferences of 

Institutional Investors, 71 J. Fin. 2905, 2905–32 

(2016). 

292See Krueger, supra footnote 257. 

293See KPMG, Sustainable Investing: FastForwarding Its Evolution (Feb. 2020), available at 

https://assets.kpmg/content/dam/kpmg/xx/pdf/ 

2020/02/sustainable-investing.pdf. 

294 Id. 

295See Felix Nagrawala and Krystyna Spinger, 

Point of No Returns: A Ranking of 75 of the World’s 

Largest Asset Managers’ Approaches to Responsible 

Investment, ShareAction (Mar. 2020), available at 

https://shareaction.org/wp-content/uploads/2020/ 

03/Point-of-no-Returns.pdf (‘‘ShareAction’’). This 

study includes 75 global asset managers. Asset 

managers from the U.S. were capped at 20 to 

represent other regions. Voting data was partially 

provided by Proxy Insight and sent to asset 

managers for verification. See also IOSCO, 

Recommendations on Sustainability-Related 

Practices, Policies, Procedures and Disclosure in 

Asset Management: Consultation Report (June 

2021), available at https://www.iosco.org/library/ 

pubdocs/pdf/IOSCOPD679.pdf. 

296See ShareAction, supra footnote 295. 

297See ShareAction, supra footnote 295. 

298See Morningstar Comment Letter (for more 

detailed discussion about the state of corporate 

issuers’ disclosures); see also section III.B.5.d. 

with a stronger public-facing profile, 

such as funds listed on a website of a 

major independent organization 

committed to sustainable investing, 

received higher inflows than other SRI 

funds or other funds.284 Other studies 

suggest that a disproportionate share of 

funds flow into SRI mutual funds when 

climate risk is particularly salient, for 

example, after environmental 

disasters.285 Additionally, other studies 

found that SRI funds have more 

persistent flows, less volatility in flows, 

and are generally less sensitive to past 

performance compared to other 

funds.286

Part of this investor demand, as 

reflected by fund flows, could be 

because investors may have a particular 

preference toward ESG investments, as 

some studies suggest. 287 Consistent 

with this view, some studies suggest 

that SRI investors are less sensitive to 

financial performance compared to 

other investors and are willing to forgo 

financial performance to incorporate 

their social preferences.288 Another 

study suggests similar results about SRI 

investors in venture capital funds, 

finding that investors who previously 

invested in Impact Funds are more 

likely to invest in Impact Funds again, 

even though Impact Funds, on average, 

did not outperform.289 This study 

further found that SRI investors reinvest 

in Impact Funds due to their nonpecuniary preferences, not their 

inaccurate beliefs about financial 

performance. 

4. Institutional Investor Engagement 

With Companies on ESG-Related Issues 

In addition to considering ESG-related 

issues when selecting portfolio 

investments, some institutional 

investment managers also engage 

directly with portfolio companies on 

these issues. Most institutional 

investors, including asset managers, 

engage with portfolio companies.290

Fewer than 20 percent of institutional 

investors responded that they did not 

engage with portfolio companies.291

Institutional investors usually engage 

with portfolio companies through 

multiple channels. Investors most often 

use private channels such as discussing 

with portfolio companies’ management 

teams the financial implications of 

climate risks (43 percent) or proposing 

certain actions to portfolio companies 

on climate risk issues (30 percent) at 

shareholder meetings. Many 

institutional investors have engaged 

with portfolio companies more publicly 

as well. For example, 30 percent of 

institutional investors indicated that 

they voted against a management 

proposal over climate risk issues at 

annual meetings, and about the same 

share (30 percent) of institutional 

investors submitted shareholder 

proposals on climate risk issues.292

Global hedge fund managers reported 

that the most common method of 

shareholder engagement was to engage 

privately with portfolio companies on 

ESG issues (74 percent), followed by 

proxy voting (34 percent).293 In contrast, 

only 25 percent of hedge fund managers 

reported public engagements and 13 

percent divestment.294

However, one report suggests global 

asset managers do not comprehensively 

disclose proxy voting records and 

shareholder engagement activities.295

For instance, this report found that 55 

percent of the assessed asset managers 

disclosed a record of proxy votes they 

cast in annual general meetings of 

portfolio companies and only 17 percent 

published reasons for their voting 

decisions.296 Further, 36 percent of the 

assessed asset managers disclosed no 

information about their ESG-related 

engagement activities publicly.297

5. Current Practices 

Some funds and advisers voluntarily 

provide ESG-related information to their 

investors, including by adhering to 

third-party frameworks and as part of 

voluntary disclosures of financed 

emissions. To provide this information, 

funds and advisers rely on various 

sources, including disclosures by 

corporate issuers, data from ESG 

providers, and index providers. This 

section discusses these practices in 

detail. 

(a) Disclosures by Funds and Investment 

Advisers on Their Use of ESG 

Information 

Some asset managers make ESGrelated information available at the fund 

level. For instance, some funds already 

provide information about ESG factors 

in the prospectus or other documents. 

However, currently ESG information is 

not required to be disclosed in a 

consistent and standardized manner.298

Different funds may use different 

terminology to describe ESG investing 


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299See, e.g., IOSCO, Sustainable Finance and the 

Role of Securities Regulators and IOSCO: Final 

Report 3 (10) (Apr. 2020) available at https://

www.iosco.org/library/pubdocs/pdf/ 

IOSCOPD652.pdf. While greenwashing is most 

closely associated with the environmental 

component of ESG, we will also use the term more 

broadly for social and governance factors as well. 

300See Lucia Gatti, Peter Seele, and Lars 

Rademacher, Grey Zone in—Greenwash Out. A 

Review of Greenwashing Research and Implications 

for the Voluntary-Mandatory Transition of CSR, 

4(1) Int’l J. Corporate Soc. Responsibility 1, 1–15 

(2019). After reviewing 94 academic papers, authors 

find no consensus about the definition of 

‘‘greenwashing.’’ Some studies define greenwashing 

as false advertisement or misleading claims. Others 

define greenwashing as claims that are not 

substantiated by third-party certification or 

evidence. Another group defines greenwashing as 

claims that are not typically false but rather 

selective disclosures of positive information and 

obscuration of negative information. 

301See Hendy Mustiko Aji and Bayu Sutikno, The 

Extended Consequence Of Greenwashing: Perceived 

Consumer Skepticism, 10(4) Int’l J. Bus. & Info. 433, 

433–468 (2015); Imran Rahman, Jeongdoo Park, and 

Christina Geng-qing Chi, Consequences Of 

‘‘Greenwashing’’: Consumers’ Reactions To Hotels’ 

Green Initiatives, 27(6) Int’l J. Contemporary 

Hospitality Mgmt. 1054, 1054–1081 (2015); NE 

Furlow, Greenwashing In The New Millennium, 

10(6) J. Applied Bus. & Econ. 22, 22–25(2010); YuShan. Chen and Ching-Hsun Chang, Greenwash 

And Green Trust: The Mediation Effects Of Green 

Consumer Confusion And Green Perceived Risk, 

114 J. Bus. Ethics 489, 489–500 (2013). 

302See Michael J. Cooper, Huseyin Gulen, and 

Panambur Raghavendra Rau, Changing Names with 

Style: Mutual Fund—Name Changes and Their 

Effects on Fund Flows, 60 J. Fin. 2825, 2825–2858 

(2005); Susanne Espenlaub, Imtiaz ul Haq, and Arif 

Khurshed, It’s All in The Name: Mutual Fund Name 

Changes After Sec Rule 35d–1, 84 J. Banking & Fin. 

123, 123–34 (2017). 

303See Sadok El Ghoul and Aymen Karoui, 

What’s in a (Green) Name? The Consequences Of 

Greening Fund Names On Fund Flows, Turnover, 

And Performance, 39 Fin. Research Letters 101620 

(2021). Candelon, supra footnote 247. 

304These studies examined hedge funds and 

mutual funds that are UN PRI signatories or selfdesignated ESG mutual funds. See Candelon, supra 

footnote 247; Hao Liang, Lin Sun, Lin; & Melvin 

Teo, Greenwashing: Evidence From Hedge Funds, 

Research Collection Lee Kong Chian School Of 

Business 1–68 (2021); Rajna Gibson Brandon, 

Simon. Glossner, Phillip Krueger, Pedro Matos, and 

Tom Steffen, . Do Responsible Investors Invest 

Responsibly? ECGI Finance (Working Paper No. 

712/2020) (June 2021). In addition, the UN PRI 

signatories in the U.S. do not seem to improve their 

fund-level ESG scores after joining the PRI. See 

Soohun Kim and Aaron Yoon, Analyzing Active 

Mutual Fund Managers’ Commitment to ESG: 

Evidence from the United Nations Principles for 

Responsible Investment Management Science 

(Forthcoming) (2021). Another study finds no 

significant relationship between mutual funds’ ESG 

ratings and ESG information communicated by fund 

managers. See Candelon, supra footnote 247. 

305See Markku Kaustia and Wenjia Yu, 

Greenwashing in Mutual Funds (Sept. 30, 2021). 

Available at SSRN: https://ssrn.com/ 

abstract=3934004. Liang, Hao; Sun, Lin; and Teo, 

Melvyn, Greenwashing: Evidence From Hedge 

Funds 1–68. Research Collection Lee Kong Chian 

School of Business (2021) Rajna Gibson Brandon, 

Simon. Glossner, Phillip Krueger, Pedro Matos, and 

Tom Steffen, Do Responsible Investors Invest 

Responsibly? (Ecgi Finance Working Paper No. 712/ 

2020) (June 2021); Soohun Kim and Yoon, Aaron, 

Analyzing Active Mutual Fund Managers’ 

Commitment to ESG: Evidence from the United 

Nations Principles for Responsible Investment 

(Forthcoming), Management Science (2021). See 

also Markku Kaustia and Wenjia Yu (2021) (finding 

that: Self-designated ESG mutual funds with low 

ESG ratings no longer attract institutional investors 

later years, although those funds continue to attract 

retail investors. Similar disconnections between 

funds’ actual investment styles and funds’ 

classifications are examined in other studies 

outside of ESG investment space.); Chen Huaizhi, 

Lauren Cohen, and Umit G. Gurun, Don’t Take 

Their Word For It: The Misclassification of Bond 

Mutual Funds, 76 J. Fin. 1699 (2021). 

306The TCFD recommended disclosures cover 

four core elements: Governance, Strategy, Risk 

Management and Metrics and Targets. Each element 

has two or three specific disclosures to be made in 

the organization’s mainstream report (i.e. annual 

financial filings). These are meant to generate 

comparable, consistent and decision-useful 

information on climate-related risks. The TCFD 

provides both general, and in some cases, sectorspecific guidance for each disclosure, while 

simultaneously framing the context for disclosure, 

and offering suggestions on what and how to 

disclose in the mainstream report. 

307See Int’l Platform on Sustainable Fin., State 

and Trends of ESG Disclosure Policy Measures 

Across IPSF Jurisdictions, Brazil, and the US (Nov. 

2021), available at https://ec.europa.eu/info/sites/ 

default/files/business_economy_euro/banking_and_

finance/documents/211104-ipsf-esg-disclosurereport_en.pdf. According to this study, some 

reporting standards such as SASB were developed 

primarily for satisfying the information needs of 

capital market participants, while others, such as 

GRI, are to balance the information needs of diverse 

stakeholder groups. 

308See Statement of Intent to Work Together 

Towards Comprehensive Corporate Reporting. 

Summary of Alignment Discussions Among 

Leading Sustainability and Integrated Reporting 

Organizations, CDP, CDSB, GRI, IIRC and SASB.’’ 

Impact Management Project, World Economic 

Forum and Deloitte (Sept. 2020), available at 

https://29kjwb3armds2g3gi4lq2sx1- 

wpengine.netdna-ssl.com/wp-content/uploads/ 

Statement-of-Intent-to-Work-Together-TowardsComprehensive-Corporate-Reporting.pdf According 

to this report, GRI, SASB, CDP, and CDSB, along 

with the TCFD recommendations guide the 

overwhelming majority of quantitative and 

qualitative sustainability disclosures including 

climate-related reporting. The same report states 

that the IIRC provides the integrated reporting 

framework that connects sustainability disclosure to 

reporting on financial and other capitals. 

Framework includes 6 capitals: financial, 

manufactured, intellectual, human, social and 

relationship, and natural. 

strategies, which could be confusing to 

investors. 

In addition, the inconsistency and 

lack of transparency in current 

disclosures may make it challenging to 

discern in which particular ESG strategy 

funds and advisers are engaged. Another 

concern with the absence of consistency 

and transparency in the current 

disclosures is that it creates a risk that 

funds and advisers may exaggerate their 

ESG strategies or the extent to which 

their investment products or services 

take into account ESG factors in order 

to attract business—a practice often 

referred to as ‘‘greenwashing.’’ 299 A 

review of several academic papers 

reveals that there is no universally 

accepted definition of 

‘‘greenwashing.’’ 300 However, many 

studies find that greenwashing has 

negative impacts on consumers, 

including increased confusion, 

skepticism, and lost trust.301

Funds and advisers may exaggerate or 

overstate the ESG qualities of their 

strategies, while labeling and marketing 

themselves in a manner that makes it 

difficult for investors to distinguish 

them from funds and advisers that are 

truly committed to and engaged in the 

particular ESG strategies that interest 

them. Indeed, academic work suggests 

that fund marketing approaches that 

take advantage of current popular 

investment styles lead to abnormal 

positive inflows, even when their actual 

strategies go unchanged.302 Similar 

findings also have been shown 

specifically in the context of ESGrelated claims.303 Several empirical 

studies compare the distribution of ESG 

scores of ESG funds with those of nonESG funds. They find the distributions 

of ESG scores between ESG funds and 

non-ESG funds overlap substantially. 

Further, ESG funds do not exhibit, on 

average, better ESG scores than non-ESG 

funds. In some cases, ESG funds have 

lower ESG scores than non-ESG 

funds.304 Examining inflows of ESG 

funds, these studies find ESG funds 

with low ESG scores attract flows as 

much as ESG funds with high ESG 

scores, or ESG funds with low ESG 

scores attract higher flows than non-ESG 

funds with similarly low ESG scores, 

suggesting the limited ability of 

investors to assess ESG-related claims 

made by funds accurately.305

(b) Third-Party Disclosure Frameworks 

Some funds follow third-party ESG 

frameworks as part of the funds’ 

investment process and for developing 

ESG-related disclosures to be included 

in regulatory filings or public reports. 

Currently, multiple reporting 

frameworks exist globally including the 

UN PRI, the Carbon Disclosure Project 

(‘‘CDP’’), the Sustainability Accounting 

Standards Board (SASB), the Global 

Reporting Initiative (GRI), the Climate 

Disclosure Standards Board (CDSB), the 

International Integrated Reporting 

Council (IIRC), and the TCFD 

recommendations.306 These third-party 

reporting frameworks have been 

developed with slightly different 

underlying objectives.307 However, in 

2020, CDP, CDSB, GRI, IIRC, and SASB 

announced their commitment to align 

their reporting frameworks and develop 

a comprehensive ESG reporting 

framework.308 Furthermore, several 

jurisdictions have announced their 


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309Eight jurisdictions—Brazil, the European 

Union, Hong Kong, Japan, New Zealand, Singapore, 

Switzerland, and the United Kingdom—announced 

the TCFD-aligned reporting requirements. See Task 

Force on Climate-related Financial Disclosures, 

2021 Status Report (Oct. 14, 2021) available at 

https://www.fsb.org/wp-content/uploads/P141021- 

1.pdf. 

310See Principles for Responsible Inv., Climate 

Change Snapshot 2020 (July 17, 2020), available at 

https://www.unpri.org/climate-change/climatechange-snapshot-2020/6080.article. 

311See Task Force on Climate-related Financial 

Disclosures, 2021 Status Report (Oct. 14, 2021) 

available at https://www.fsb.org/wp-content/ 

uploads/P141021-1.pdf. 

312 If at least one climate related indicator is made 

public, it is considered public disclosure. See 

Principles for Responsible Investment, Climate 

Change Snapshot 2020 (July 17, 2020), available at 

https://www.unpri.org/climate-change/climatechange-snapshot-2020/6080.article. 

313TCFD recommendations cover four core 

elements: Governance, Strategy, Risk Management 

and Metrics and Targets. See Task Force on 

Climate-Related Financial Disclosures, 2021 Status 

Report (Oct. 14, 2021) (For more details), available 

at https://www.fsb.org/wp-content/uploads/ 

P141021-1.pdf. 

314See Principles for Responsible Investment, 

Climate Change Snapshot 2020 (July 17, 2020), 

available at https://www.unpri.org/climate-change/ 

climate-change-snapshot-2020/6080.article. 

315 Id. (In this report, ‘‘carbon intensity’’ relates to 

a company’s physical carbon performance and 

describes the extent to which its business activities 

are based on carbon usage for a defined Scope and 

fiscal year The WACI is a metric that the TCFD 

recommended asset managers and asset owners 

disclose for one of its four core elements, Metrics 

and Targets.) 

316This information includes all asset owners 

including U.S. asset owners that report to PRI in 

2021. See Task Force on Climate-related Financial 

Disclosures, 2021 Status Report (Oct. 14, 2021), 

available at https://www.fsb.org/wp-content/ 

uploads/P141021-1.pdf. (The information 

specifically about U.S. asset managers in 2021 is not 

available in this report.) 

317See Network for Greening the Fin. Sys. 

(‘‘NGFS’’), A Call for Action: Climate Change as a 

Source of Financial Risk 11 (Apr. 2019), available 

at https://www.ngfs.net/sites/default/files/medias/ 

documents/synthese_ngfs-2019_-_17042019_0.pdf. 

318See P’ship for Carbon Acct. Fins. (PCAF), 

Financial Institutions Taking Action: Overview of 

Financial Institutions (see table), available at 

https://carbonaccountingfinancials.com/financialinstitutions-taking-action#financial-institutionstaking-action (‘‘PCAF’’). The U.S. Financial 

Institutions represent commercial banks, 

investment banks, development banks, insurers, 

and asset owners/managers. 

319See CDP Report, supra footnote 119. 

320Financial institutions indirectly contribute to 

GHG emissions through their lending, investments 

and insurance underwriting. Under the GHG 

Protocol, these emissions are classified as indirect 

Scope 3 emissions in Category 15, which are often 

referred to as financed emissions or portfolio 

emissions. 

321See CDP Report, supra footnote 119. 

According to this report, a total of 332 financial 

institutions (banks, insurers, asset owners and asset 

managers) participated in this survey. Of these 332 

financial institutions, 74 institutions are from North 

America. However, this report does not have 

detailed information about how many of these 74 

institutions are asset managers in the U.S. 

322The report indicated that a total of 332 global 

financial institutions responded to this 

questionnaire. Out of those 332 institutions, 133 

institutions were in Europe, (85 institutions were in 

Asia Pacific, and 78 institutions were in North 

America. 25 institutions were in Middle-East and 

Africa and 15 institutions were in Latin America. 

These 332 financial institutions from six continents 

had combined assets of over $109 trillion. Financial 

institutions include banks, insurers, asset managers, 

and asset owners. Id. 

323See CDP Report, supra footnote 119. 

324See ICI Comment Letter. 

325See S&P 500 and ESG Reporting, Center for 

Audit Quality (Aug. 9, 2021), available at https:// 

www.thecaq.org/sp-500-and-esg-reporting. In 2020, 

271 companies published ESG data, which 

increased from 188 companies in 2019. 

326Of those 264 companies, 31 companies had 

assurance from accounting firms, while 235 

companies had assurance from other providers such 

as consulting firms. Id. Similarly, 99 out of the 100 

largest U.S. companies by market capitalization 

provided some form of sustainability disclosures, 

71 obtained some level of assurance, and 11 

obtained this assurance from an audit firm or 

affiliated firm. See International Federation of 

official reporting requirements for 

domestic organizations to be aligned 

with the TCFD recommendations.309

TCFD suggested several metrics that 

funds can use to calculate the GHG 

emissions of their investments, 

including, among others, the WACI and 

carbon footprint metrics. 

In 2018, the UN PRI incorporated a set 

of indicator questions based on TCFD 

recommendations into its reporting 

framework.310 TCFD reported that in 

2021, out of a total of 5,058 asset 

managers and asset owners in the U.S., 

approximately 10 percent (517) of asset 

managers and asset owners reported to 

the UN PRI on climate-related indicators 

based on its review of climate related 

disclosures.311 In 2020, out of 340 U.S. 

asset managers reporting to the UN PRI, 

about 83 percent (283 asset managers) 

privately made climate disclosures, 

while 17 percent (57 asset managers) 

made their reports public.312 Among 

four TCFD disclosure elements, U.S. 

asset managers reporting to the UN PRI 

exhibited low reporting rates in metrics 

elements 313 and only 12 percent of U.S. 

asset managers disclosed GHG 

emissions and the related risks.314 To 

measure, monitor, and manage portfolio 

emissions, U.S. asset managers most 

commonly used carbon footprint (32 

percent) and exposure to carbon-related 

assets (32 percent), closely followed by 

portfolio footprint (30 percent) and 

carbon intensity (30 percent). The least 

used approach by asset managers was 

the WACI (21 percent) metric, which the 

TCFD recommends asset managers and 

asset owners disclose for one of its four 

core elements, Metrics and Targets.315

However, the TCFD reported that in 

2021, the WACI was the metric most 

frequently used by asset owners 

reported to the UN PRI, although it was 

still the least used by asset managers.316

A survey of central banks indicated that 

most of them calculate several carbon 

emission metrics in line with the 

recommendations of the TCFD. Carbon 

footprint is the metric that central banks 

most often (33 percent) monitored.317

(c) Disclosures Related to Financed 

Emissions by Certain Financial 

Institutions 

As of October 2021, the PCAF has 

global members encompassing 163 

financial institutions with $51.4 trillion 

in assets. Among these PCAF members, 

4 asset managers representing $9 trillion 

assets, are headquartered in the United 

States.318 Asset managers that are 

committed to PCAF or other third-party 

frameworks voluntarily measure and 

disclose financed emissions.319

Financed emissions of an asset manager 

include greenhouse gas emissions 

aggregated across portfolios.320

However, an asset manager’s disclosed 

financed emissions may be incomplete 

and not cover all managed portfolios. In 

2020, one international organization 

conducted a survey of global financial 

institutions to establish a baseline for 

the current state of certain climate 

change considerations in the financial 

sector.321 Of the institutions that 

participated in this survey, 51 percent 

responded that they analyze their 

portfolios’ impacts on the climate.322

Approximately 25 percent of 

respondents, or 84 financial institutions 

including asset managers, reported their 

financed emissions. However, among 

these financial institutions’ calculated 

financed emissions, financial 

institutions most frequently responded 

that the financed emissions calculations 

covered less than 10 percent of a 

respondent’s portfolio assets.323

Based on this same survey, 

inconsistency exists not just in the 

portfolio coverage, but also in the 

metrics reported based on the methods 

of aggregation. While the WACI, the 

metric recommended by the TCFD, was 

most commonly disclosed, portfolio 

carbon footprint, overall carbon 

intensity, and exposure to carbonrelated assets were also commonly 

reported among asset owners and 

managers. 

(d) Disclosures by Corporate Issuers 

Funds and investment advisers may 

rely on the limited ESG data currently 

reported by corporate issuers when 

reporting the extent of their own ESGrelated activities.324 One study 

estimates that, among S&P 500 

companies, 54 percent published some 

form of ESG data in 2020.325 This same 

study reports that the vast majority—97 

percent—have some form of assurance 

or verification.326 One commenter cited 


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Accountants (‘‘IFAC’’), The State of Play in 

Sustainability Assurance (2021), available at 

https://www.ifac.org/knowledge-gateway/ 

contributing-global-economy/discussion/state-playsustainability-assurance. 

327 Disclosure rates related to environmental 

factors are 66 percent in the U.S. and Canada, social 

factors are 67 percent, governance factors are 65 

percent. See Morningstar, Corporate Sustainability 

Disclosures (June 7, 2021). (Morningstar comment 

letter attachment report states that the disclosure 

rates are measured by the Sustainalytics company 

database.) 

328See ICI Comment Letter; IEA, Number of 

Companies in the S&P 500 Reporting Energy- and 

Emissions-Related Metrics (updated May 26, 2020), 

available at https://www.iea.org/data-and-statistics/ 

charts/number-of-companies-in-the-s-and-p-500- 

reporting-energy-and-emissions-related-metrics. 

329This is generally consistent with a survey that 

found 34 percent of public companies disclose 

information regarding climate related risks, GHG 

emissions, or energy sourcing in their SEC filings. 

Of those companies disclosing in their SEC filings, 

the vast majority (82 percent) disclose it under Item 

105 of Regulation S–K, Risk Factor. See U.S. 

Chamber of Commerce Center for Capital Markets 

Competiveness, 2021 Survey Report: Climate 

Change & ESG Reporting from the Public Company 

Perspective (2021), available at https://

www.centerforcapitalmarkets.com/resource/ 

climate-change-public-company-perspective-esgreporting-climate-change-public-companyperspective/. A total of 436 public companies 

participated in this survey, representing a broad 

range of industries that covered small to large 

market capitalization. 

330See Morningstar Comment Letter. 

331See Climate Change & ESG Reporting from the 

Public Company Perspective (2021). 

332See Climate Change & ESG Reporting from the 

Public Company Perspective (2021). 

333Large companies refer to the largest half of the 

Russell 1000 index companies by market 

capitalization, which are generally the same 

companies comprising the S&P 500 index. See 2021 

S&P 500 + Russell 1000 Sustainability Reporting in 

Focus, Governance & Accountability Institute, Inc. 

(2021), available at https://www.ga-institute.com/ 

2021-sustainability-reporting-in-focus.html. 

334 Id. (small companies refer to the smaller half 

of the Russell 1000 index companies). 

335 Id. 

336See ICI Comment Letter, Securities Industry 

and Financial Markets Association (SIFMA) Asset 

Management Group Comment Letter, Morningstar 

Comment Letter. 

337 Id. 

338See Climate Change & ESG Reporting from the 

Public Company Perspective (2021). 

339See Governance & Accountability Institute, 

Inc., supra footnote 333. 340 Id. 341See 40 CFR part 98. See also EPA Fact Sheet: 

Greenhouse Gases Reporting Program 

Implementation. The EPA rule applies to all 

facilities that directly emit more than 25,000 metric 

tons of carbon dioxide equivalent (CO2e) per year 

(i.e., Scope 1 emissions) and to all suppliers of 

certain products that would result in over 25,000 

metric tons CO2e if those products were released, 

combusted, or oxidized (i.e., a component of Scope 

3 emissions). The EPA estimates that the required 

reporting under the EPA rule covers 85–90% of all 

GHG emissions from over 8,000 facilities in the 

United States. 342The EPA provides emissions data at the 

facility level and the ultimate parent level, the latter 

of which represents an aggregation of facility-level 

data. The data is made public each year through the 

EPA website. 343See Timo Busch, Matthew Johnson, and 

Thomas Pioch, Corporate Carbon Performance 

Data: Quo Vadis, 26 J. Indus. Ecology 350 (2020) 

(‘‘Busch’’). See also Network for Greening the Fin. 

Sys. (‘‘NGFS’’), Progress Report on Bridging Data 

Gap (May 2021), available at https://www.ngfs.net/ 

sites/default/files/medias/documents/progress_

report_on_bridging_data_gaps.pdf. 

344See Greenhouse Gas Emissions Reduction 

Targets and Market-based Policies, National 

Continued 

disclosure rates of between 60 and 70% 

among environmental (E), social (S) and 

governance (G) factors for issuers in the 

United States and Canada.327

Among environmental factors, 

according to one commenter, more than 

half of S&P 500 companies report Scope 

1 and 2 emissions, with fewer reporting 

Scope 3 emissions.328 We also analyzed 

6,644 annual reports (10-Ks, 40-Fs, and 

20-Fs) submitted from late 2019 until 

the end of 2020 and found that 33 

percent contain some form of disclosure 

related to climate change, with a greater 

proportion coming from larger firms and 

those in high-emission industries.329

Commenters indicated that the quality 

of these disclosures and the degree to 

which these disclosures are 

standardized vary.330

Some companies elect to disclose 

sustainability or ESG information 

outside of their SEC filings. A majority 

(52 percent) of public companies that 

participated in a survey indicate that 

they already publish a sustainability, 

ESG, or similar report, with more 

companies planning to publish their 

first reports in the near future.331 Of 

those companies already publishing a 

sustainability report, most (86 percent) 

publish it as a separate report on their 

company website.332

The share of companies voluntarily 

publishing sustainability or ESG reports 

varies significantly by size and by 

sector. Large-cap companies and 

companies in high emission sectors 

such as energy and utility are more 

likely than others to publish reports. For 

instance, among the Russell 1000 index 

companies, 92 percent of large 

companies (in terms of market 

capitalization) published sustainability 

or ESG reports in 2020.333 In contrast, 

about half of small-cap companies 

published such reports.334 Examining 

various sectors, nearly all companies in 

the utility and energy sectors published 

sustainability or ESG reports in 2020, 

whereas about half of companies in the 

communication sector published such 

reports.335

To the extent that ESG-related 

disclosures by funds rely on the 

information disclosed by corporate 

issuers, the reliability and quality of 

ESG disclosures by corporate issuers 

influence the reliability and quality of 

ESG disclosures by funds as well. Some 

commenters suggested third-party 

assurance would improve the reliability 

of ESG disclosures by corporate issuers, 

and thus indirectly improve the quality 

and reliability of funds’ ESG 

disclosures.336 These commenters 

further suggest that assurance would 

provide investors with confidence in the 

disclosed information, and thus increase 

the utility of disclosures.337 Examining 

current practices of corporate issuers 

obtaining assurance on climate or ESG 

related disclosures, according to one 

survey, 28 percent of public companies 

obtain third-party audits or 

assurances.338 Regarding these climate 

or ESG disclosures, there are some 

discrepancies by size of companies. 

Forty-four percent of the larger half of 

the Russell 1000 index companies 

sought external assurance for nonfinancial ESG disclosures in 2020, 

whereas only 18 percent of the smaller 

half of the Russell 1000 index 

companies did so.339 Even among the 

companies that obtained external 

assurance on ESG disclosures, 2 percent 

for small-cap companies and 3 percent 

for large-cap companies obtained the 

assurance on the entire sustainability 

reports. Approximately half of the 

companies with external assurance (48 

percent for large-cap companies, 56 

percent for small-cap companies) 

obtained assurance on GHG emissions 

only. In terms of the level of assurance, 

90 percent of companies with external 

assurance obtained limited or moderate 

assurance, whereas 7 percent of 

companies obtained reasonable 

assurance.340

There also exist Federal and statelevel reporting rules related to GHG 

emissions. At the Federal level, the 

EPA’s 2010 Mandatory Reporting of 

Greenhouse Gases Rule requires large 

emitters and suppliers of fossil fuels 

that meet certain conditions to disclose 

their emissions to the GHG Reporting 

Program,341 which are then made public 

through their website.342 However, the 

EPA’s GHG Reporting Program (EPA 

GHGRP) does not require disclosures at 

the corporate issuer level. Further, the 

EPA GHGRP does not require disclosure 

of emissions sources outside the United 

States. One study suggests that EPA 

GHGRP usually covers between 30 

percent and 50 percent of a company’s 

carbon scope 1 emissions, so the 

aggregated facility level emissions are 

not strongly correlated with the overall 

Scope 1 emissions.343 At least 16 states 

and Puerto Rico have enacted legislation 

mandating some form of GHG emissions 

reporting.344


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Conference of State Legislatures (‘‘NCSL’’) (Sept. 22, 

2021). The same report indicates that other states, 

such as New Mexico, North Carolina, and 

Pennsylvania, have recently committed to statewide 

GHG reduction goals through executive action, but 

do not currently have binding statutory targets. 

345 IOSCO, IOSCO Consults on ESG Ratings and 

Data Providers (Media Release) (July 26, 2021), 

available at https://www.iosco.org/news/pdf/ 

IOSCONEWS613.pdf. 

346See KPMG, supra footnote 293. 

347 Id. 

348See European Comm’n, Directorate-Gen. for 

Fin. Stability, Fin. Servs. & Capital Mkts. Union, 

Study on Sustainability-Related Ratings, Data and 

Research, (Jan. 6, 2021) (Report prepared by 

SustainAbility) available at https://data.europa.eu/ 

doi/10.2874/14850. In this study, major ESG rating 

and data providers include Bloomberg, CDP, FTSE 

Russell, ISS–ESG, MSCI, Refinitiv, RepRisk, 

RobecoSAM, Sustainalytics, and Vigeo Eiris. 

349 Id. 

350 Id. See also Patrick Bolton and Marcin 

Kacperczyk, Do Investors Care About Carbon Risk? 

National Bureau of Economic Research (2020). 

Authors suggest that Scope 3 emissions are 

estimated using an input-output matrix, while the 

data on scope 1 and scope 2 emissions are widely 

reported. 

351See Busch, supra footnote 343. 

352 Id. See also NGFS, Progress Report on 

Bridging Data Gap (May 2021), available at https:// 

www.ngfs.net/sites/default/files/medias/ 

documents/progress_report_on_bridging_data_

gaps.pdf, supra footnote 343. It is worth noting that 

company-reported data on scope 3 emissions are 

relatively inconsistent across ESG providers, 

compared to company-reported data on scope 1 and 

2. 

353See NGFS, Progress Report on Bridging Data 

Gap (May 2021), available at https://www.ngfs.net/ 

sites/default/files/medias/documents/progress_

report_on_bridging_data_gaps.pdf, supra footnote 

343. 

354See Investment Adviser Association Comment 

Letter; OECD Business and Finance Outlook 2020 

Chapter 4. 

355See OECD Business and Finance Outlook 

2020, Chapter 4. 

356See IOSCO, IOSCO Consults on ESG Ratings 

and Data Providers (Media Release) (July 26, 2021), 

available at https://www.iosco.org/news/pdf/ 

IOSCONEWS613.pdf, supra footnote 345. Not only 

asset managers rely on services from ESG providers. 

A majority (58 percent) of central banks currently 

use or consider to use the data provided by external 

ESG providers. Of those central banks that use 

services from ESG providers, two thirds (67 

percent) use more than one ESG provider. See 

Network for Greening the Financial System, 

Progress report on the implementation of 

sustainable and responsible investment practices in 

central bank’s portfolio management, Dec. 2020. 

357See IOSCO, IOSCO Consults on ESG Ratings 

and Data Providers (Media Release) (July 26, 2021), 

available at https://www.iosco.org/news/pdf/ 

IOSCONEWS613.pdf, supra footnote 345. 

358 Index Indus. Ass’n (‘‘IIA’’), Measurable 

Impact: Asset Mangers on the Challenges and 

Opportunities of ESG Investment (2021) (IIA 2021 

International Survey of Asset Managers), available 

at http://www.indexindustry.org/wp-content/ 

uploads/2021/07/IIA-ESG-Executive-Summary2021-vFINAL.pdf. 

359See IIA, Measurable Impact: Asset Mangers on 

the Challenges and Opportunities of ESG 

Investment (2021) (IIA 2021 International Survey of 

Asset Managers), available at http://www.index

industry.org/wp-content/uploads/2021/07/IIA-ESGExecutive-Summary-2021-vFINAL.pdf, supra 

footnote 358; Figure 21; NGFS, Progress report on 

the implementation of sustainable and responsible 

investment practices in central banks’ portfolio 

(Dec. 2020) (for the use of ESG indexes in general), 

available at https://www.ngfs.net/sites/default/files/ 

medias/documents/sri_progress_report_2020.pdf. 

360See IIA, Index Industry Association’s Third 

Annual Survey Finds 2.96 Million Indexes Globally, 

available at http://www.indexindustry.org/2019/10/ 

15/index-industry-associations-third-annualsurvey-finds-2-96-million-indexes-globally/. 

361ESG tilting is also referred to as index-adjusted 

weighting in that companies are selected or 

reweighted by comparing the ESG characteristics of 

a firm to those of its peers. See NGFS, Progress 

Report on Bridging Data Gap (May 2021), available 

at https://www.ngfs.net/sites/default/files/medias/ 

documents/progress_report_on_bridging_data_

gaps.pdf, supra footnote 343. 

362See IIA, Measurable Impact: Asset Mangers on 

the Challenges and Opportunities of ESG 

Investment (2021) (IIA 2021 International Survey of 

Asset Managers), available at http://

www.indexindustry.org/wp-content/uploads/2021/ 

07/IIA-ESG-Executive-Summary-2021-vFINAL.pdf, 

supra footnote 358. 

(e) Use of ESG Providers and ESG 

Indices by Asset Managers 

The market for ESG ratings and data 

has grown considerably over the past 

few years due in part to a lack of 

consistent disclosure at the corporate 

issuer level, and the increasing interest 

of investors in ESG funds and 

investing.345 One report estimates there 

are over 150 ESG providers globally.346

Each of these providers has its own 

definitions and data sources.347 Some 

studies estimate there are 10 to 15 major 

ESG rating and data providers 

worldwide.348

Among E, S, and G factors, some 

assess environmental data to be better 

aligned across ESG providers than social 

and governance data.349 For instance, 

data on scope 1 and 2 carbon emissions 

are relatively consistent across ESG 

providers, although data on scope 3 

emissions are somewhat inconsistent. 

Some attribute this discrepancy to the 

fact that a larger number of companies 

report scope 1 and 2 emissions 

compared to scope 3 emissions.350 ESG 

providers generate large datasets based 

on data from corporate reports. When 

companies do not report emissions data, 

ESG providers use their own estimation 

methods and fill in these missing 

data.351 Compared to company reported 

data, estimations across ESG providers 

are relatively less consistent.352 Some 

suggest that different estimation 

methodologies used across ESG 

providers contribute to the 

inconsistency across ESG providers.353

Investment advisers and fund 

managers often collect, digest, and 

evaluate information on ESG factors 

other than that disclosed by corporate 

issuers to incorporate in their 

investment decisions. Therefore, many 

advisers and fund managers currently 

rely on information from ESG providers 

pertaining to issuers in their analysis.354

Even if managers and advisers decide to 

conduct the analyses in-house, due to 

the lack of existing ESG data and 

inconsistency in existing ESG 

disclosures from corporate issuers, 

properly incorporating ESG factors in 

portfolios and investment strategies may 

require significant resources.355 Many 

asset managers use ESG ratings and ESG 

data by contracting with multiple ESG 

providers because the scope, coverage, 

specialization, and expertise of ESG 

providers differ.356 Asset managers also 

use ESG providers for different purposes 

to varying degrees.357 Some asset 

managers use ESG ratings to incorporate 

ESG factors in their investment 

decisions, while others use ESG data 

and build their own internal rating 

methodologies. In addition, some asset 

managers use ESG ratings to guide their 

engagement with portfolio companies. 

Institutional investors use ESG ratings 

to assess their exposure to ESG risks and 

monitor their external asset managers. 

Among asset managers that rely on 

quantitative data with respect to their 

ESG analyses, a majority use market 

indexes tracking ESG factors in some 

way.358 Asset managers in the United 

States use ESG indexes most frequently 

for investment strategies, followed by 

benchmarking and measurement 

purposes.359 In 2020, there were 2.96 

million indexes globally.360 Objectives, 

scope and strategies vary across ESG 

indices, ranging from low-carbon 

solutions to ESG tilting.361 In addition, 

one third of U.S. asset managers in a 

survey strongly agreed that the indexes 

improved their ability to compare ESG 

performances.362

C. Benefits, Costs and Effects on 

Efficiency, Competition, and Capital 

Formation of the Proposed Rule and 

Form Amendments 

The proposed rules’ ESG disclosure 

framework requires several different 

types of ESG disclosures from funds and 

advisers that are tailored to a given 

fund’s or adviser’s ESG features. In this 

section, we first discuss the general 

economic benefits associated with more 

precise and comparable ESG disclosures 

by funds and advisers. We then discuss 

the economic effects associated with 

each of the specific disclosure 

requirements of this proposal, including 

benefits, costs, and effects on efficiency, 

competition, and capital formation. 

1. General Economic Benefits of ESG 

Disclosure 

As discussed in previous sections, 

there has been substantial demand from 

investors for ESG-related strategies. Also 

as discussed, investors’ ability to obtain 


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363See section III.B.5.a. 

364See section III.B.5.d. 

365See Beyer, Cohen, Lys, and Walther, The 

Financial Reporting Environment: Review of The 

recent Literature, J. ACCT. ECON. 296–343 (2010) 

for a more technical and detailed discussion of 

these and other additional assumptions. 

366See Vincent Crawford and Joel Sobel, Strategic 

Information Transformation, 50 Econometrica 1431, 

1431–1451 (1982). 

367Even if investors or clients are somewhat able 

to discern potentially misleading statements as they 

become larger, but imperfectly so or only after 

incurring time or monetary costs, theoretical work 

still suggests that in equilibrium funds and advisers 

might be incentivized to still apply a positive bias 

to their disclosures, so that mandatory disclosures 

and standards would improve the information 

conveyed to investors and clients. See E. Einhorn, 

and A. Ziv, Biased Voluntary Disclosure, Review of 

Accounting Studies 420–442 (2012). 

368Agency problems are conflicts of interest 

between investors or clients (i.e., the principals) 

and funds or advisers (i.e., the agents), respectively. 

369See Erik R. Sirri and Peter Tufano, Costly 

Search and Mutual Fund Flows, 53(5) Journal of 

Finance 1589–1622 (1998). 

370See Nikolai Roussanov, Hungxun Ruan, and 

Yanhao M. Wei, Marketing Mutual Funds, Jacobs 

Levy Equity Management Center for Quantitative 

Financial Research Paper (2020). 

371See Jeroen Suijs, Voluntary Disclosure of 

Information When Firms Are Uncertain of Investor 

Response, 43 J. Acct. & Econ. 291, 391–410 (2007); 

Bond, Philip, and Yao Zeng, Silence is Safest: 

Information Disclosure When the Audience’s 

Preferences are Uncertain, forthcoming Journal of 

Financial Economics (2022). 

372See Ronald A. Dye, Investor Sophistication 

and Voluntary Disclosures, 3 Rev. Acct. Stud. 261, 

261–287 (1998). 

373As specified in section III.B, the economic 

baseline against which we measure the economic 

effects of this proposal, including its potential 

effects on efficiency, competition, and capital 

formation, is the state of the world as it currently 

exists. Accordingly, we do not include the recently 

proposed Climate Disclosure Rule in our baseline. 

To the extent the recently proposed Climate 

Disclosure Rule is adopted as currently proposed, 

we provide additional analysis below that discusses 

how the Climate Disclosure Rule may affect the 

incremental costs and benefits of certain provisions 

under this proposal. See Proposed Rule on the 

Enhancement and Standardization of ClimateRelated Disclosures for Investors, (Apr. 11, 2022) 

[87 FR 21334 (April 11, 2022)], available at https:// 

www.federalregister.gov/documents/2022/04/11/ 

2022-06342/the-enhancement-and-standardizationof-climate-related-disclosures-for-investors. 

information may be impeded by the 

inconsistent and at times favorablybiased nature of reporting on ESG 

strategies by funds and advisers. 

Opaque ESG-related statements in the 

current environment make it difficult 

for some investors to discern funds’ and 

advisers’ degree of commitment to such 

strategies.363 Even when funds provide 

quantitative disclosures, such as 

financed emissions, there currently is 

substantial inconsistency among funds 

as to when metrics are reported, the 

proportion of the portfolio covered, and 

the method of aggregation.364 Investor 

and client interest in ESG strategies 

necessitates comparable and reliable 

ESG-related information. This interest 

has not been met as a result of key 

market failures that appear to have led 

to deficiencies in current ESG-reporting 

practices. Below we describe examples 

of frictions that may lead to these 

market failures in more detail and how 

a mandatory reporting regime may thus 

produce benefits for investors and 

clients.365

(1) Funds and Advisers May Be Able 

and Willing To Present Information 

Inconsistently 

Funds or advisers may have 

incentives to make a strategy look as 

good as possible (for example, as a 

result of selective choice of metrics or 

methods of computation, exaggeration, 

obfuscation, or ‘‘greenwashing’’). But 

such decisions might impose a negative 

externality on other funds’ and advisers’ 

investors and clients. For example, if a 

fund or adviser includes favorablybiased claims in its disclosures, these 

disclosures could increase flows into 

and value of investments of investor or 

client funds, but also prevent investors 

and clients overall from understanding 

which funds are actually engaging in the 

strategies they would prefer to 

undertake. In a setting where investors 

or clients are unable to distinguish 

exaggerated claims at all, this results in 

what is referred to as a cheap talk 

equilibrium, where no useful 

information is discernable.366 In this 

scenario, a mandatory reporting regime 

would be beneficial to investors and 

clients to the extent that disclosures in 

the current environment are either 

unverifiable, difficult to verify, or 

exaggerated.367

The benefits of mandatory disclosure 

become even more pronounced if funds 

or advisers not only have discretion in 

disclosure (both in disclosing or not and 

the method of disclosure), but also have 

incentives that are misaligned with their 

clients’ or investors’ interests—i.e., in 

the presence of agency problems.368 For 

example, agency problems may arise if 

funds are rewarded more for good 

performance than they are punished for 

bad performance. The empirical mutual 

fund literature provides some evidence 

that this is the case, where funds with 

superior performance are rewarded with 

large inflows, while poor performing 

funds see limited outflows.369 In this 

case, funds may have a greater incentive 

to avoid disclosing negative 

information, instead focusing on the 

most positive aspects of their fund.370

This can further incentivize embellished 

disclosures and therefore reduce useful 

information available to investors and 

clients. 

When funds or advisers use 

inconsistent methods in reporting 

disclosures, the resulting lack of 

standardization can be costly for 

investors and clients, who may be 

unable to accurately compare across 

funds or advisers as a result. While 

agency problems, as noted above, can 

exacerbate these inconsistencies, such 

irregular reporting can arise any time 

there are multiple reasonable, but 

distinct and not easily comparable, 

approaches in presenting information 

chosen by different sets of funds or 

advisers—as appears to be the case in 

the current environment for ESG-related 

disclosures. Standardization limits such 

inconsistencies, allowing investors to 

identify funds and clients that are 

closely aligned with their investment 

objectives and therefore facilitating 

more efficient capital allocation. 

Standardization that enhances 

transparency and comparability of such 

disclosures is also likely to promote 

competition among investment advisers 

and funds. 

(2) Investors/Clients May Have Varying 

Preferences for and Expectations About 

Such Disclosures 

Finally, voluntary disclosures may 

not provide all relevant information if 

funds and advisers are uncertain of 

investor or client responses to such 

disclosures. If, for example, investors 

have varied preferences, such that funds 

are uncertain about whether investors 

will consider a given disclosure to be 

good or bad news, then not all funds 

will choose to disclose, resulting in 

potentially beneficial private 

information that is not revealed.371 Even 

in a setting where preferences of 

potential clients might be similar, as 

may be the case for ESG-focused funds, 

responses to disclosures may still be 

uncertain, because investors may 

interpret the same information 

differently. This may be the case when 

there are varying levels of sophistication 

among investors in their ability to 

understand disclosures and/or different 

prior expectations.372

As discussed above, fund managers 

and investment advisers currently 

expend significant resources to search, 

collect, and process ESG-related data 

under the existing voluntary disclosure 

regime. The following sections discuss 

the benefits and costs of the proposed 

rules against this baseline.373

2. Investor and Client Facing 

Disclosures 

We are proposing several 

amendments to disclosures furnished to 


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374See CDP Report, supra footnote 119. 

investors or clients, including fund 

prospectuses, annual reports, and Form 

ADV Brochures (Form ADV Part 2A, 

including Appendix 1, the Wrap Fee 

Program Brochure), with the aim of 

providing investors and clients with 

more meaningful information 

concerning ESG factors. This section 

analyzes the anticipated benefits and 

costs associated with these amendments 

in detail. 

By providing a comprehensive 

framework on key features of ESG funds 

and investment advisers, the proposed 

requirements would increase the 

amount of information related to how 

funds and advisers consider ESG factors 

available to investors and make ESG 

disclosures easily comparable across 

funds and advisers. As a result, 

investors would be able to more easily 

identify funds and advisers that most 

closely align with their investment 

objectives. 

(a) Enhanced ESG Disclosure for Fund 

Prospectus 

(1) Benefits 

The proposed amendments would 

require additional disclosure by openend funds (including ETFs) and closedend funds (including BDCs) that 

consider one or more ESG factors. The 

level of detail required by the proposed 

enhanced disclosure would depend on 

the extent to which a fund considers 

ESG factors in its investment process. 

This disclosure structure tailors the 

amount of the disclosure to the specific 

needs of the investors in a particular 

fund; investors in funds that more 

extensively incorporate ESG factors may 

need more detailed ESG-related 

information to assess the fund 

performance compared to funds that 

consider ESG factors along with many 

other factors. 

The proposed rule’s disclosure 

framework achieves this by requiring 

different degrees and types of disclosure 

across two main types of ESG funds: 

Integration Funds and ESG-Focused 

Funds (including Impact Funds). Within 

ESG-Focused Funds, the framework 

tailors its requirements depending on 

how funds implement ESG strategies 

such as tracking a specific ESG index, 

applying an inclusionary or 

exclusionary screen, seeking to achieve 

a specific impact, voting proxies, and 

engaging with issuers on ESG matters. 

Generally speaking, Integration Funds 

are funds that consider one or more ESG 

factors as part of a broader investment 

process that also incorporates non-ESG 

factors. Under the proposed rule, funds 

that meet the proposed definition of 

‘‘Integration Fund’’ would provide more 

limited disclosures relative to ESGFocused Funds. Specifically, Integration 

Funds would be required to summarize 

in a few sentences how the fund 

incorporates ESG factors into its 

investment selection process, including 

what ESG factors the fund considers. 

Open-end funds would provide this 

information in the summary section of 

the fund’s prospectus, while closed-end 

funds, which do not use summary 

prospectuses, would disclose the 

information as part of the prospectus’s 

general description of the fund. The 

proposal would further require a more 

detailed description of how an 

Integration Fund incorporates ESG 

factors into its investment selection 

process in an open-end fund’s statutory 

prospectus or later in a closed-end 

fund’s prospectus. We believe these 

disclosures would improve investors’ 

ability to process information and assist 

them in comparing across Integration 

Funds. 

The proposal would include specific 

additional disclosures regarding the role 

of GHG emissions for Integration Funds 

in the fund’s statutory prospectus or 

later in a closed-end fund’s prospectus. 

Certain investors have expressed 

particular demand for information on 

the role of GHG emissions in ESG 

investment selection processes,374

which can create an incentive for funds 

to overstate the extent to which 

portfolio company emissions play a role 

in the fund’s strategy. We believe these 

disclosures would further assist 

investors in comparing across 

Integration Funds and make better 

informed choices of Integration Funds 

for their investments, given that 

Integration Funds might vary 

substantially in how they utilize GHG 

emissions metrics data or otherwise 

consider portfolio company GHG 

emissions. 

The requirements for Integration 

Funds to disclose information regarding 

ESG factors and GHG emissions are 

more limited than the requirements for 

ESG-Focused funds. We believe that 

these more limited requirements for 

Integration Funds would improve 

investors’ ability to process information 

and assist them in comparing across 

Integration Funds while avoiding 

impeding informed investment 

decisions with overemphasized 

statements on the role of ESG factors in 

Integration Funds. 

ESG-Focused Funds, which include 

funds that employ several different ESG 

investment strategies as a significant or 

main consideration in selecting 

investments or in their engagement 

strategy with the companies in which 

they invest, would be required to 

provide more detailed information than 

Integration Funds. This information 

would be presented in a tabular format, 

in a standard order and consistent 

manner, across ESG-Focused Funds. By 

providing information prominently in 

the same location in each fund’s 

prospectus, the proposed amendments 

could improve investors’ understanding 

of an ESG-Focused Funds’ investment 

strategy and assist them in comparing 

different ESG-Focused Funds. Because 

each of the common ESG strategies 

applicable to the fund would be 

presented in a ‘‘check the box’’ style, 

investors could immediately identify 

the ESG strategies employed by each 

fund, which would further enhance the 

comparability across ESG-Focused 

Funds. 

To facilitate investors’ informed 

investment decision making, the 

proposed amendments would also 

require an ESG-Focused Fund to 

provide a more detailed and lengthier 

disclosure later in the prospectus. 

Under the proposal’s layered disclosure 

approach in an electronic version of the 

prospectus, the fund would also be 

required to provide hyperlinks in the 

table to related, more detailed 

disclosure. This proposed approach 

would make full and detailed ESGrelated information available to 

investors, allowing them to make more 

informed investment decisions. 

At the same time, the layered 

requirements would avoid 

overwhelming investors with 

information that any particular investor 

may not be interested in. If an investor 

wants more in-depth information about 

certain topics, the proposed layered 

approach would allow investors to 

selectively gather the information they 

need, thus enhancing the overall 

effectiveness and the utility of the 

disclosures. 

The proposed rules would require 

ESG-Focused Funds that apply 

inclusionary or exclusionary screens to 

explain briefly the factors the screen 

applies as well as to state the percentage 

of the portfolio, in terms of net asset 

value, to which the screen is applied 

and explain briefly why the screen 

applies to less than 100% of the fund’s 

portfolio (excluding cash and cash 

equivalents held for cash management) 

if applicable. These proposed 

requirements would enhance investors’ 

understanding about how ESG factors 

guide the fund’s investment decisions 

and what kinds of investments a fund 

focuses on or avoids. This would 

facilitate investors’ searches to identify 

funds closely aligned with the investors’ 


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375 Jonathan B. Berk and Jules H. van Binsbergen, 

The Impact of Impact Investing, Stanford University 

Graduate School of Business Research Paper, 

George Mason Law & Economics (Research Paper 

No. 21–26) (Aug. 21, 2021), available at https://

ssrn.com/abstract=3909166 or https://dx.doi.org/ 

10.2139/ssrn.3909166. 

376For example, we estimate the annual direct 

costs attributable to information collection 

requirements in the proposed amendments to the 

open-end fund prospectus would be $1,319.50 per 

Integration Fund, while we estimate higher costs for 

ESG-Focused Funds, $9,084 per ESG-Focused 

Fund. 377Based on the results of the Paperwork 

Reduction Act (‘‘PRA’’) analysis provided for N–1A, 

it is estimated that the annual direct paperwork cost 

burdens attributable to information collection 

requirements in the proposed amendments to the 

open-end fund prospectus would be approximately 

$1,319.50 per Integration Fund, and $9,084 per 

ESG-Focused Fund. We estimate that the proposed 

amendments to the closed-end fund prospectus in 

Form N–2 filings would incur the same compliance 

costs per fund as the proposed amendments to 

Form N–1A. 

preferences on ESG investing, a 

potentially difficult task in the current 

environment of inconsistent disclosures. 

Furthermore, by providing the share of 

the portfolio selected with regards to a 

particular screen, investors would verify 

whether and to what extent that ESG 

factors are incorporated into the fund. 

Therefore, the proposed rules would 

reduce ambiguous or overstated claims 

and increase transparent and 

comparable information about ESG 

investing, which, in turn, would enable 

investors to easily verify ESG-related 

claims, compare across ESG-Focused 

Funds, and make better informed 

decisions. 

If an ESG-Focused Fund commits to 

any third-party frameworks, its 

prospectus would disclose what thirdparty frameworks the fund follows in its 

investments and how the framework 

applies to funds. This would enable 

investors to better understand how the 

fund’s commitment to such ESG 

frameworks is reflected in its portfolios, 

and gauge how closely the fund is 

aligned with those ESG frameworks, 

which would guide investors in their 

searches to identify funds that better 

reflect investors’ ESG investment 

objectives. 

If an ESG-Focused Fund tracks an 

index, its prospectus would describe the 

index and how the index utilizes ESG 

factors in determining its constituents. 

The proposed disclosures about the 

index that the fund tracks would likely 

benefit investors by providing insights 

into how the fund allocates capital and 

by providing an ESG-specific 

benchmark against which similar funds 

can be compared. These disclosures 

could increase competition among ESGFocused Funds that track an ESGrelated index, facilitate efficient capital 

allocation, and further promote capital 

formation. 

In addition, under the proposed rules, 

if an ESG-Focused Fund uses an 

internal methodology or an ESG 

provider in evaluating, selecting, or 

excluding investments, it must provide 

an overview of how it incorporates ESG 

factors into its process for evaluating, 

selecting, or excluding investments. 

This requirement would benefit 

investors by allowing them to evaluate 

and monitor how funds use ESG criteria 

to construct their portfolios, which may 

be an important factor in some 

investors’ investment decisions and may 

promote competition among ESGFocused Funds. Additionally, the 

proposed rules would enhance the 

efficiency of capital allocation by 

enabling investors to identify funds that 

are better aligned with investors’ 

preferences. 

The proposed rules also require an 

ESG-Focused Fund that engages with 

issuers to provide qualitatively an 

overview of how it engages or expects 

to engage with its portfolio companies 

on ESG issues, including through the 

fund’s voting of proxies and meetings 

with management. Shareholder 

engagement strategies have gained 

traction lately and many investors now 

view shareholder engagements as a 

crucial element in ESG investing.375

Specific information about funds’ voting 

policies and voting records would likely 

assist investors in selecting funds and 

advisers, and enable an investor to 

effectively monitor funds and advisers 

in connection with whether they 

exercise voting rights in a manner 

aligned with the investor’s objectives. 

This could increase competition among 

ESG-Focused Funds and further 

facilitate capital formation in ESGFocused Funds that engage with issuers. 

With respect to Impact Funds, a type 

of ESG-Focused Fund, the proposed 

rules would require the fund to describe 

what impact(s) it seeks to achieve, how 

it will achieve the impact(s), how the 

fund measures progress, what key 

performance indicators are analyzed, 

what time horizon is used to analyze 

progress, and the relationship between 

the impact and financial returns. 

Investors seeking to achieve specific 

impacts would find this additional 

information particularly important 

because it would allow them to more 

easily identify and compare funds 

seeking the same impacts. This would 

lower investor search costs, which 

could promote competition among 

Impact Funds and increase capital 

formation. 

In aggregate, the proposed rule’s 

tailored requirements would allow 

investors to differentiate between funds 

for which ESG is a major focus (under 

the proposed rule, ESG-Focused Funds), 

other funds for which ESG is one factor 

among many (under the proposed rule, 

Integration Funds), and funds that do 

not consider ESG as part of their 

investing strategies (non-ESG). This 

would allow investors to more 

efficiently select funds that are better 

aligned with their investment 

objectives. In addition, by structuring 

the proposed disclosure to clearly 

discriminate between funds that 

incorporate ESG factors to varying 

degrees, the proposal would reduce the 

risk that a fund overstates the extent to 

which it considers ESG factors in its 

investment process and would provide 

a more accurate description of the 

fund’s investment processes to 

investors. 

(2) Costs 

Integration Funds and ESG-Focused 

Funds would incur costs to comply with 

the proposed ESG-disclosures for fund 

prospectuses. In general, we anticipate 

that the compliance burden would be 

relatively lower for Integration Funds 

and higher for ESG-Focused and Impact 

Funds, as the latter funds would be 

subject to more detailed disclosure 

requirements.376 Compliance costs 

would be mitigated to the extent that 

some funds incorporating ESG factors 

may already disclose some form of ESGrelated information. Further, these costs 

are ultimately borne by investors as 

funds are pass-through vehicles. 

The proposed rules would require 

ESG-Focused Funds to disclose more 

detailed ESG-related information than 

Integration Funds. In preparing 

disclosures, attorneys and compliance 

professionals would review and 

familiarize themselves with 

requirements as specified in the 

proposed rules. Fund managers would 

review their current investment 

strategies and practices to gather any 

information needed for the proposed 

disclosures. Attorneys would review 

funds’ disclosures to ensure that the 

disclosures satisfy all requirements of 

the proposed rules.377

Any increase in compliance costs are 

passed on to investors as funds are passthrough vehicles. Larger funds and 

funds that are part of larger fund 

complexes would experience economies 

of scale in complying with the proposed 

requirements compared to smaller funds 

and funds that are part of smaller fund 

complexes. Therefore, smaller funds 

and funds that are part of a smaller fund 

complex may potentially experience a 

competitive disadvantage relative to 

larger funds and fund families. 


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378See proposed instruction to Item 11 of Form 

N–8B–2 under the Investment Company Act of 1940 

(17 CFR 274.12). 

379See supra footnotes 97–98 and accompanying 

text (stating that a UIT, by statute, is an unmanaged 

investment company that invests the money that it 

raises from investors in a generally fixed portfolio 

of stocks, bonds, or other securities. Unlike a 

management company, a UIT does not trade its 

investment portfolio, and does not have a board of 

directors, officers, or an investment adviser to 

render advice during the life of the UIT). 

380Based on the results of the PRA analysis, the 

annual direct paperwork cost burdens attributable 

to information collection requirements in the 

proposed amendments to the Form N–8B–2 would 

be approximately $871.50 per UIT. We estimate the 

proposed amendments to the Form S–6 would incur 

the same compliance cost of $871.50 per UIT. Note 

that UITs would bear different costs related to the 

proposed Inline XBRL requirement than the other 

funds that would be subject to the requirement, 

because unlike those other funds, UITs are not 

currently filing any forms in Inline XBRL. See infra 

section IV.B. 

381Proposed Item 27(b)(7)(i)(B) of Form N–1A; 

Proposed Instruction.4.(g)(1)(B) to Item 24 of Form 

N–2 [17 CFR 274.11a–1]. 

382Proposed Item 27(b)(7)(i)(C) of Form N–1A; 

Proposed Instruction 4.(g)(1)(C) to Item 24 of Form 

N–2 [17 CFR 274.11a–1]. 

Among funds incorporating ESG 

factors, some funds may already 

disclose ESG-related information, while 

other funds may not. Funds that already 

disclose some form of ESG-related 

information would incur lower 

compliance costs compared to the funds 

that currently do not disclose any ESGrelated information. Similarly, among 

funds that already disclose some form of 

ESG information, funds whose 

disclosure elements are similar to the 

proposed requirements would incur 

relatively lower compliance costs 

compared to the funds whose current 

disclosures are not aligned with the 

proposal. In this regard, funds that 

already disclose some form of ESGrelated information, and in particular 

funds whose current disclosures are 

closely aligned with the proposal, may 

be at a competitive advantage, relative 

to funds that currently do not disclose 

any ESG-related information. 

There may be costs associated with 

emphasizing ESG factors beyond other 

factors. This could distract investors, 

and could lead to an overemphasis on 

ESG investing, detracting from capital 

formation. Some funds may incur costs 

in determining which category a fund 

belongs to, as some may perceive an 

ambiguity in the proposed definitions or 

if the fund’s current practices or 

investment strategies do not fit neatly 

with the proposed types of funds. 

The proposed rules may prompt some 

funds to change their current 

investment strategies and investment 

implementation practices. For instance, 

a fund may determine the disclosure 

requirements associated with operating 

as an ESG-Focused Fund under the 

proposal may be too costly given its 

current investment practices and 

strategies. Therefore, it may decide to 

not have ESG factors as the primary 

focus of its investment strategy. In this 

case, such a fund would incur costs in 

changing its current investment strategy, 

including adjusting its disclosure and 

marketing practices to reflect such a 

change. Due to lack of data, we cannot 

precisely estimate the magnitude of 

such potential adjustments. 

Nonetheless, a fund making these 

adjustments may incur substantial costs, 

as the fund would need to carefully 

review its current investment strategies 

and processes against the provisions in 

the proposed rules, identify areas 

requiring adjustment, and implement 

those adjustments. 

Some ESG funds may currently 

disclose ESG-related information that 

would not be required by the proposed 

rules and amendments. In response to 

the proposal, some of these funds may 

decide to disclose only the required 

information and discontinue their 

current practices of disclosing any 

additional information. This may be the 

case if there are ongoing costs to 

existing voluntary disclosures that the 

fund decides to shift toward covering 

the costs of mandatory disclosures 

under the proposed rule. If that 

happens, some investors may be 

negatively affected to the extent that 

they are familiar with, relying on, or 

otherwise prefer any discontinued 

information. However, even if so, this 

negative impact would be mitigated by 

the enhanced consistency and 

transparency in ESG disclosures and the 

potential reduction in overstated or 

exaggerated claims with regard to ESG 

funds. 

(b) ESG Disclosures for Unit Investment 

Trusts 

The proposed rules also contain an 

amendment to the registration statement 

requirement for UITs to provide 

investors with clear information about 

how portfolios are selected based on 

ESG factors. The proposed amendment 

would require any UIT that provides 

exposures to portfolios that were 

selected based on one or more ESG 

factors to explain how those factors 

were used to select the portfolio 

securities.378 In contrast to the 

amendments that we are proposing for 

other types of funds, the level of detail 

required by the proposed amendment 

for UITs reflects their unmanaged 

nature.379 For example, we are not 

proposing to differentiate disclosure 

based on whether a UIT’s selection 

process follows an integration model or 

an ‘‘ESG-Focused’’ model as the 

portfolio is fixed, and these models will 

not be used for investment selection 

after the UIT shares are sold. 

(1) Benefits 

Since investors can review the UIT’s 

portfolio before investing, the proposed 

amendments would particularly benefit 

UIT investors by providing ESG-related 

information at the critical moment of 

portfolio selection. Given these features 

of UITs, the proposed amendments 

would benefit investors by lowering 

search costs and enabling investors to 

more effectively and efficiently identify 

UITs that align with their objectives, 

thus promoting competition among 

UITs, efficient allocation of capital, and 

capital formation by furthering 

investments in UITs. 

(2) Costs 

UITs would incur one-time direct 

compliance costs at inception. These 

costs would primarily derive from 

gathering information, and preparing 

and subjecting to legal review the 

proposed disclosures. After 

establishment, there would be no 

recurring costs during the life of the 

UIT.380 Similar to our discussion of 

compliance costs for other funds in 

section III.C.2.a, we anticipate that 

larger UITs or those that are part of a 

larger fund family would experience 

economies of scale and that smaller 

UITs or those that are part of a smaller 

fund family may experience a 

competitive disadvantage. 

(c) ESG Disclosure for Fund Annual 

Reports 

In addition to the proposed 

amendments to fund prospectuses, we 

are proposing several amendments to 

fund annual reports to provide 

additional ESG-related information for 

Impact and ESG-Focused Funds in the 

MDFP or MD&A section of the annual 

report as applicable. Specifically, the 

proposed amendments would require 

Impact Funds to discuss the fund’s 

progress on achieving its ESG-related 

impacts in both qualitative and 

quantitative terms during the reporting 

period, and the key factors that 

materially affected the fund’s ability to 

achieve the desired impact.381

Additionally, funds for which proxy 

voting is a significant means of 

implementing their ESG strategy would 

be required to disclose certain 

information regarding how the fund 

voted proxies relating to portfolio 

securities on ESG issues during the 

reporting period.382 Funds for which 

engagement with issuers on ESG issues 


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383Proposed Item 27(b)(7)(i)(E) of Form N–1A; 

Proposed Instruction 4.(g)(1)(D) to Item 24 of Form 

N–2 [17 CFR 274.11a–1]. 

384Proposed Item 27(b)(7)(i)(E) of Form N–1A; 

Proposed Instruction.4.(g)(1)(E) to Item 24 of Form 

N–2 [17 CFR 274.11a–1]. 

385The requirement to refer investors to the 

fund’s full voting record filed on Form N–PX would 

not apply to BDCs because they do not file reports 

on Form N–PX. 

386See ShareAction, supra footnote 295. 

387Based on the results of the PRA analysis, the 

annual direct paperwork cost burdens attributable 

to information collection requirements in the 

proposed amendments to the fund shareholder 

reports would be approximately $5,724 per fund for 

disclosure requirements related to Impact Funds. 

This is the same amount required for disclosure 

related to ESG voting matters and engagements. 

through means other than proxy voting 

is a significant means of implementing 

their ESG strategy would also be 

required to disclose certain information 

about their engagement practices.383

Finally, the proposal would also require 

environmentally focused funds to 

disclose the aggregated GHG emissions 

of the portfolio.384

(1) Disclosure Concerning Impacts, 

Proxy Voting, and Engagement 

(a) Benefits 

In addition to the proposed 

amendments to fund prospectuses, the 

proposed amendments to fund annual 

reports provide additional ESG-related 

information in the MDFP or MD&A 

section for Impact Funds and ESGFocused Funds that engage with issuers 

through proxy voting or other means. 

We anticipate that these proposed 

amendments would generate benefits for 

prospective and current investors. 

Investors usually review and compare 

different fund prospectuses before 

selecting where to invest, meaning that 

prospectus disclosures particularly 

benefit investors actively involved in 

their search processes. In comparison, 

disclosures in fund annual reports 

would benefit both current and 

prospective investors by helping them 

monitor the ESG-related progress and 

performance of funds over the reporting 

year. 

In this regard, the proposed 

amendments would benefit investors in 

Impact Funds by providing investors 

quantitative and qualitative information 

to contextualize and evaluate the fund’s 

progress on achieving its intended 

impact, in addition to any risk-adjusted 

financial return. Such information 

would benefit investors by enhancing 

their understanding of the fund’s actual 

progress in achieving its impact, as well 

as increasing transparency into the key 

factors that materially affected the 

fund’s ability to achieve its impact. To 

the extent different Impact Funds use 

the same or similar key performance 

indicators to measure their progress in 

achieving a given impact, investors 

could more easily compare which funds 

have been more effective at achieving 

their ESG impact. 

In addition, the proposed 

amendments would require an ESGFocused Fund for which proxy voting is 

a significant means of implementing 

ESG strategy to disclose information 

about how the fund used proxy voting 

to accomplish its ESG voting strategy. 

Specifically, the fund would be required 

to disclose the percentage of ESGrelated voting matters during the 

reporting period for which the fund 

voted in furtherance of the initiative. 

The fund would be permitted to limit 

the disclosure to voting matters 

involving ESG factors that the fund 

incorporates into its investment 

decisions. Further, the fund would be 

required to provide a cross reference or 

hyperlink to the fund’s full voting 

record filed on Form N–PX for investors 

who are interested in more granular 

information beyond the top-line 

percentage disclosed in the fund’s 

annual shareholder report.385 By 

providing the information about ESGrelated voting matters in annual reports, 

investors would easily confirm whether 

the expectations they formed based on 

the prospectus are met, and assess how 

funds use proxy voting as a tool to 

achieve their stated ESG-related 

objectives. The proposed disclosure 

concerning proxy voting records could 

be particularly useful for investors 

because it would, as a quantitative 

measure, enhance the comparability 

across ESG-Focused Funds. 

Under the proposed amendments, 

funds for which engagement with 

issuers through means other than proxy 

voting is a significant means of 

implementing their ESG strategy would 

be required to disclose the progress on 

any objectives of such engagement 

described in their prospectus. Further, 

such funds would be required to 

disclose the number or percentage of 

issuers with whom they held ESG 

engagement meetings related to one or 

more ESG issues and the total number 

of ESG engagement meetings. This type 

of information is, for the most part, not 

widely available, even though many 

investors view shareholder engagement 

as a crucial element in ESG investing as 

discussed in section III.C.2.a. Given this 

circumstance, the proposed disclosure 

requirements would fill this information 

gap, and enable investors to evaluate 

more comprehensively how funds 

would implement ESG strategies and 

accomplish their objectives, especially 

when the most common engagement 

method is private meetings with issuers, 

which are often not transparent to 

investors. Moreover, some regard 

effective engagements as a driver to 

enhance operational and financial 

performance.386 In this regard, increased 

transparency about engagement 

activities and proxy voting would 

enhance efficiency, promote 

competition and facilitate capital 

formation by equipping investors with 

necessary information to select funds 

that effectively engage with the issuers. 

The proposed fund report disclosure 

requirements would allow investors to 

monitor the fund’s progress toward 

stated ESG-related objectives over time 

easily as well as across competing funds 

by enhancing transparency and 

comparability. In this regard, the 

proposed amendments would promote 

competition among ESG-Focused 

Funds. In addition, the proposed 

disclosures would provide investors 

information to more efficiently identify 

funds better aligned with their ESGrelated preferences (e.g., funds pursuing 

the same ESG impacts), which would 

facilitate capital to be allocated in 

accordance with investors’ ESG-related 

preference, thus, enhance the efficiency 

in capital allocation. Furthermore, the 

increased transparency about how funds 

achieve their stated ESG-related 

objectives would bolster capital 

formation by improving investor 

confidence in this space, and promote 

competition among ESG-Focused 

Funds. 

(b) Costs 

The proposed amendments to fund 

annual reports would impose 

compliance costs on the subjected 

funds, although those costs will vary 

depending on the types and features of 

the particular fund. For example, Impact 

Funds would incur costs to disclose 

their progress toward their specific 

impact goals in both qualitative and 

quantitative terms. Similarly, funds that 

engage with issuers through proxy 

voting or other means would disclose 

detailed information such as how the 

fund voted on ESG issues and total 

number of engagement meetings on 

particular ESG-related matters. To meet 

these requirements, funds would need 

to gather their records on these issues, 

review and evaluate them in accordance 

with their stated goals or key 

performance indicators, and prepare 

disclosures in the report.387 Through 

these processes, a fund may more 

closely track and monitor its progress 


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36712 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

388See KPMG, supra footnote 293. Some fund 

managers express their concern that adopting best 

practices especially around shareholder 

engagements could be expensive. Some fund 

managers, however, may also suggest that small or 

mid-sized fund managers could address this 

challenge by collaborating with other asset 

managers through organizations and initiatives such 

as Climate Action 100+. 

389See Proposed Item 27(b)(7)(i)(E) of Form N–1A 

(and related instructions); see also Proposed 

Instruction.4.(g)(1)(E) to Item 24 of Form N–2. This 

proposed requirement would apply to ESG-Focused 

Funds that indicate that they consider 

environmental factors in response to Item C.3(j)(ii) 

on Form N–CEN (or, for BDCs, that would indicate 

that they consider environmental factors in 

response to that item if they were required to file 

Form N–CEN). See supra footnote 123 (with 

accompanying text) (discussing the proposed GHG 

emissions reporting requirements for 

environmentally focused funds). Carbon footprint is 

the total carbon emissions associated with the 

fund’s portfolio, divided by the fund’s market net 

asset value and expressed in tons of CO2e per 

million dollars invested in the fund, while WACI 

is the fund’s exposure to carbon-intensive 

companies, expressed in tons of CO2e per million 

dollars of the portfolio company’s total revenue. 

390See US SIF, supra footnote 256. 

391See CDP Report, supra footnote 119. See also 

PCAF, supra footnote 318. 

392As discussed in section II.A.3.d, among 

environmentally focused funds, only certain funds 

would be required to disclose GHG metrics of their 

portfolio in the MDFP section of the fund’s annual 

report to shareholders. If a fund affirmatively states 

that it does not consider issuers’ GHG emissions as 

part of its investment strategy, the fund would not 

be required to disclose GHG metrics. Hereafter, the 

funds subject to the proposed rules are referred to 

as certain environmentally focused funds. 

393See proposed Instruction 1(d)(x) of Item 

27(b)(7)(i)(E) of Form N–1A; proposed Instruction 

1(d)(x) of Item 24.4.g.(2)(B) of Form N–2. 

394Funds would not be required to disclose their 

financed Scope 3 emissions using the WACI 

methodology. 

395See Stanford Sustainable Finance Initiative 

Precourt Institute for Energy, Scope 3 Emissions: 

Measurement and Management, Apr. 2021. See also 

Science Based Targets, Value change in the Value 

Chain: Best Practices in Scope 3 Greenhouse Gas 

Management (Nov. 2018). On average the Scope 3 

emissions are 5.5 times the amount of combined 

Scope 1 and Scope 2 emissions. See BSR, Climate 

Action in the Value Chain: Reducing Scope 3 

Emissions and Achieving Science-Based Targets 

(2020), available at https://www.bsr.org/en/ourinsights/report-view/scope-3-emissions-sciencebased-targets-climate-action-value-chain. On 

average, more than 75% of an industry sector’s 

carbon footprint is attributed to Scope 3 sources. 

See Carlo Funk, Carbon Footprinting: An Investor 

over time. Some or all of the associated 

compliance costs may ultimately be 

passed on to investors through 

potentially higher expenses or fees. 

Under the proposal, certain ESGFocused Funds would disclose their 

progress toward their stated impact 

goals and their records about proxy 

voting and engagements with issuers. 

These proposed requirements may 

incentivize funds to select impact goals 

that could easily produce more 

measurable progress in the near future 

or focus more on frequent meetings with 

portfolio companies instead of 

producing successful outcomes from the 

engagements. Furthermore, the 

proposed requirements for engagements 

may be more challenging for small 

funds if they do not have the right 

expertise and resources and if they do 

not usually gain traction with portfolio 

companies on their own, as suggested 

by one study.388 If so, those funds may 

be competitively disadvantaged 

compared to their peers with more 

resources or expertise. 

(2) GHG Metrics Disclosures 

(a) Benefits 

The proposed rules would also 

require environmentally focused funds 

to disclose GHG metrics—specifically, 

their carbon footprint and the WACI of 

their portfolio in the MDFP or MD&A 

section of the fund’s annual report as 

applicable—unless the fund 

affirmatively states that it does not 

consider issuers’ GHG emissions as part 

of its investment strategy.389

As mentioned previously, one report 

notes that ‘‘climate change/carbon’’ was 

by a wide margin the largest assetweighted ESG criterion among fund 

managers, with $4.18 trillion in assets as 

of 2020.390 However, in the current 

voluntary regulatory environment, 

financed GHG emissions disclosures by 

funds are inconsistently reported. For 

example, as discussed above, surveys of 

financed emission disclosures 

commonly report only a portion of a 

fund’s portfolio.391

Given this baseline, reporting 

transparent and consistent quantitative 

metrics would provide more meaningful 

information to investors interested in 

environmentally focused funds that 

consider issuers’ GHG emissions as part 

of their investment strategy.392 In 

particular, the proposed GHG metrics 

would help investors interested in 

identifying and investing in 

environmentally focused funds to 

compare such funds based on 

quantitative information about the 

fund’s portfolio emissions where the 

fund considers GHG emissions as part of 

its investment strategy. In addition, the 

proposed GHG metrics would address 

greenwashing concerns by providing a 

quantitative measure for comparing 

such funds, limiting the ability for some 

funds to exaggerate their practices for 

evaluating GHG metrics or the extent to 

which they take into account GHG 

emissions. 

The proposed rules would require 

environmentally focused funds to 

disclose two GHG metrics, both of 

which are measured at the portfolio 

level, and thus make it easier for 

investors to compare and rank different 

funds. By requiring two GHG metrics 

instead of one, the needs of different 

investors would be better met as each 

metric is developed for slightly different 

purposes. Specifically, the portfolio 

carbon footprint metric would provide 

more critical information when 

investors determine where to invest in 

order to make impacts on emissions as 

it provides the information about the 

number of tons of CO2e per million 

dollars invested in the fund. This metric 

would also be useful for investors who 

are more interested in the total size of 

a fund’s financed emissions, as it can be 

easily converted to absolute total carbon 

emissions by multiplying by the total 

size of the fund. Conversely, the WACI 

could be more useful for investors who 

are interested in a portfolio’s exposure 

to carbon-intensive companies, so 

investors could easily identify funds 

that invest in more carbon efficient 

companies. 

We propose to cover a wide range of 

asset classes including derivatives in 

calculating GHG metrics. By including 

various types of assets including 

derivatives in GHG metrics, the 

proposal would reduce the incentive to 

invest in one asset class over another 

depending on the inclusion or exclusion 

of a particular asset class in GHG 

metrics. Otherwise, it may incentivize 

funds to hold equity exposure as 

derivative positions for high emission 

issuers to avoid disclosing the 

associated emissions, and thus affect 

capital allocations. Moreover, investors 

attempting to understand the climaterelated risks and opportunities of their 

portfolio would need information on 

GHG emissions for derivatives too, since 

derivatives can inherit the risk profile of 

the underlying security. Moreover, as 

described in Section III.C.1, some 

investors may incur a non-pecuniary 

cost to holding non-ESG investments. 

As such, information about derivatives 

positions would allow them to better 

ascertain where their portfolio concurs 

with their values. 

In addition to the above metrics, an 

environmentally focused fund would 

also be required to disclose the financed 

Scope 3 emissions of its portfolio 

companies, to the extent that Scope 3 

emissions data are reported by the 

fund’s portfolio companies.393 Scope 3 

emissions would be disclosed separately 

for each industry sector in which the 

fund invests, and would be calculated 

using the carbon footprint methodology 

discussed above.394 Scope 3 emissions 

represent the largest portion of 

companies’ emissions, in some cases, up 

to 99 percent of total emissions of the 

company.395 In addition, portfolio 


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Toolkit, State Street Global Advisors (Sept. 2020). 

For example, for Lego and Walmart, Scope 3 

emissions constitute 75% and 90%, respectively, of 

total emissions. Herbie Huang, Shrikanth 

Narayanan, and Jayashankar M. Swaminathan, See 

also Carrot or Stick? Supplier Diversity and Its 

Impact on Carbon Emission Reduction Strategies 

(Working Paper) (2020), available at https://papers.

ssrn.com/sol3/papers.cfm?abstractid=3559770). For 

another company, Scope 3 emissions account for 

97% of total emissions in 2017. See BHP, 

Addressing Greenhouse Gas Emissions Beyond Our 

Operations: Understanding the ‘Scope 3’ Footprint 

of Our Value Chain (Aug. 2018). 

396Business entities can push their carbon 

emissions to other parts of supply chain. See Scope 

3 Emissions: Measurement and Management, 

Stanford Sustainable Finance Initiative Precourt 

Institute for Energy, (Apr. 2021). See also see 

Science Based Target, Value Change in the Value 

Chain: Best Practices in Scope 3 Greenhouse Gas 

Management (Nov. 2018). In its example, a 

company that outsources much of its manufacturing 

has a lot higher Scope 3 emissions than its 

competing peer that less relies on outsourcing. 

Another study suggests a negative correlation 

between Scope 1 (or 2) emissions and Scope 3 

emissions. See Xi Chen, Saif Benjaafar, and Adel 

Elomri, On the Effectiveness of Emission Penalties 

in Decentralized Supply Chains, 274 (3) European 

Journal of Operational Research 1155–1167 (2019). 

397See section III.B.5 (for more details). See also 

supra footnotes 145 and 146. 

398See Stanford Sustainable Finance Initiative 

Precourt Institute for Energy, Scope 3 Emissions: 

Measurement and Management (Apr. 2021). See 

also Science Based Targets, Value Change in the 

Value Chain: Best practices in Scope 3 Greenhouse 

Gas Management (Nov. 2018). 

399See Partnership for Carbon Accounting 

Financials, The Global GHG Accounting & 

Reporting Standard for the Financial Industry (Nov. 

18, 2020). 

400For example, if the proposed Climate 

Disclosure Rule were to be adopted as proposed, 

corporate issuers would be required to disclose 

certain GHG emissions metrics in their regulatory 

filings with the Commission. Such information 

could then be used by environmentally focused 

funds to calculate their GHG emission metrics 

under this proposal, if the proposal is adopted as 

proposed. 

401See section III.B.5. 

402See also ICI comment letter and Morningstar 

comment letter. 

403Another regulator also identified that 

obtaining and gathering input data would be a key 

incremental cost in its cost benefit analysis of a 

proposed rule concerning climate-related 

disclosures by asset managers. See FCA 

Consultation Paper, supra footnote 134. 

404 Id. This is consistent with another regulator’s 

(the FCA) assessment in analyzing costs and 

benefits of its regulations concerning climaterelated disclosure by asset managers. 

405As described in a case study, this unidentified 

financial institution is a multinational large cap 

financial institution based in Europe. Although it 

relies on services from third parties, it does not 

provide the information about costs associated with 

obtaining services from third-parties. This financial 

institution reports climate-related information in its 

Universal Registration Documents (URD), Integrated 

Report, and TCFD Report. See Lee Reiners and 

Karen E. Torrent, The Costs of Climate Disclosure: 

Three Case Studies on the Cost of Voluntary 

Climate-Related Disclosures, A Report of the 

Climate Risk Disclosure Lab at Duke Law’s Global 

Financial Markets Center (Dec. 2021), available at 

https://climatedisclosurelab.duke.edu/wp-content/ 

uploads/2021/12/The-Cost-of-ClimateDisclosure.pdf. 

406Other responses include $20,000 to $50,000 (6 

percent), $50,000 to $100,000 (11 percent), 

$100,000 to $200,000 (6 percent), more than 

$200,000 (11 percent). See PCAF Costs and Efforts 

of GHG Accounting for Financial Institutions (Dec. 

Continued 

companies can organize their business 

activities in such a way that reduces 

Scope 1 and 2 emissions without 

reducing total emissions by increasing 

Scope 3 emissions instead.396 Therefore, 

the information about Scope 3 

emissions could provide investors with 

a more complete picture of total 

emissions associated with the portfolio. 

However, Scope 3 emissions data are 

not widely available and are less 

consistent.397 The methodologies to 

capture Scope 3 emissions accurately 

are still evolving.398 Moreover, Scope 3 

metrics would overcount the emissions 

due to the fund. Therefore, disclosing 

Scope 3 emissions separately from 

Scope 1 and 2 emissions would provide 

investors with more reliable information 

without compromising its quality, while 

providing investors with the flexibility 

to factor in Scope 3 emissions, if 

relevant, in their investment decisions. 

Furthermore, by separately disclosing 

Scope 3 emissions, other measurements 

are free from the concern of overcounting. Because the comparability, 

coverage, and reliability of Scope 3 data 

varies greatly per sector,399 disclosing 

Scope 3 emissions by industry sector 

would allow investors to put Scope 3 

data into proper context, and thus better 

understand the meaning of the data. 

The benefits discussed above are 

based on the current climate disclosure 

regime as compared to the proposed 

disclosure framework. To the extent that 

more corporate issuers disclose 

emissions in their regulatory filings 

with the Commission, the benefits to 

investors would be enhanced as funds 

would be able to base their disclosures 

on comprehensive and reliable data 

provided by corporate issuers.400 As 

discussed in section III.B.2, currently, 

almost 90% of the holdings of 

environmentally focused funds are in 

public equity or debt. Yet, the 

information about carbon emissions of 

public issuers is not evenly available 

across industries and size of issuers.401

(b) Costs 

As discussed above, the subset of 

environmentally focused funds that 

consider emissions or climate-related 

factors would be subject to the proposed 

GHG metric requirements. Due to this 

limited scope, the aggregate compliance 

costs associated with the proposed GHG 

metrics requirements would not be 

substantial. However, at the fund level, 

funds that are subject to the proposed 

requirements would incur nonnegligible compliance costs. Some 

compliance costs would be one-time 

costs, while others would be on-going 

costs. For funds subject to the proposed 

GHG metrics requirements, attorneys 

and compliance professionals would 

conduct legal reviews of the proposed 

requirements and their current practices 

to identify areas for changes, which 

would be largely one-time costs. 

Funds subject to the proposed GHG 

metrics requirements may invest in 

companies that publicly disclose GHG 

emissions as well as companies that do 

not publicly disclose emissions. As 

discussed in section III.B.5, currently, 

some companies publicly disclose GHG 

emissions but the availability of this 

information varies by industry and the 

size of the company.402 For instance, the 

share of larger companies that publicly 

disclose GHG emissions is, on average, 

higher than the share of smaller 

companies disclosing emissions. For 

those companies that publicly disclose 

GHG emissions under the current 

regulatory regime, some disclose the 

information through regulatory filings 

with the Commission, while many 

others publish it in sustainability 

reports or on the company’s website. 

Thus, funds would be required to 

review various sources to gather GHG 

emissions of portfolio companies.403 For 

those companies that do not publicly 

provide the information about GHG 

emissions, funds would be required to 

make a good-faith estimation of Scope 1 

and Scope 2 emissions. Obtaining, 

gathering, and estimating emissions data 

of portfolio companies would be an 

essential component of costs that funds 

subject to this proposal would incur.404

Some fund managers would internally 

conduct these activities to obtain or 

estimate input emissions data, while 

others would base their estimates on 

inputs from ESG providers. Some would 

employ both, depending on existing 

resources and capabilities. 

Some financial institutions including 

asset managers may already rely on ESG 

providers for external support. For 

instance, a multinational financial 

institution reported that it relies on 

third-parties for data acquisition and 

expert analysis to produce its climaterelated disclosures that are aligned with 

various voluntary frameworks, such as 

the TCFD.405 Among financial 

institutions that already disclose 

financed emissions, approximately two 

thirds (67 percent) reported that they 

spent less than $20,000 per year as 

external costs to measure financed 

emissions.406 If an institution already 


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36714 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

21, 2021). The PCAF Secretariat has conducted a 

brief survey among financial institutions that had 

already completed at least one full disclosure cycle. 

A total of 18 PCAF signatories responded to this 

survey. A majority of respondents were banks (72 

percent) with a small representation (11 percent) 

from asset managers. See Partnership for Carbon 

Accounting Financials comment letter. 

407Another regulator, FCA, estimated that a large 

asset manager would appoint 4 full-time employees, 

while a medium asset manager would appoint 2.5 

full-time employees for various activities (including 

sourcing relevant data). This estimate, however, 

would not be directly comparable in this analysis, 

because the UK’s regulations about climate-related 

disclosures by assets managers are generally 

broader than this proposal. Additionally, the 

estimated burden hours are measured at the 

institutional level, meaning the estimated burden 

hours at the fund level would be smaller. See FCA 

Consultation Paper, supra footnote 134. 

408Another regulator, FCA, estimated that an 

asset manager would incur an average subscription 

to third-party climate related data service of 

£217,000 on an annual basis. Since the UK’s 

regulations on asset managers would be different in 

various aspects, this estimate would not be directly 

applicable in this analysis. 

409Other responses include less than 50 days (17 

percent), 100 to 200 days (6 percent), 200 to 400 

days (17 percent), more than 400 days (11 percent). 

See PCAF Costs and Efforts of GHG Accounting for 

Financial Institutions (Dec. 21, 2021). 

410For instance, in Dec. 2021, the FCA 

introduced new rules and guidance for asset 

managers and certain FCA-regulated asset owners to 

make mandatory disclosures consistent with the 

TCFD’s recommendations on an annual basis at the 

entity level and at the portfolio level. In particular, 

mandatory disclosures at the portfolio level include 

a core set of climate-related metrics. See FCA, 

PS21/24: Enhancing Climate-Related Disclosures by 

Asset Managers, Life Insurers and FCA-regulated 

Pension Providers (updated Dec. 17, 2021), 

available at https://www.fca.org.uk/publications/ 

policy-statements/ps-21-24-climate-relateddisclosures-asset-managers-life-insurers-regulatedpensions. 

411See The Costs of Climate Disclosure: Three 

Case Studies on the Cost of Voluntary ClimateRelated Disclosures, Duke Law School: Global 

Financial Markets Center (Dec. 2021). 

412This financial institution reports climaterelated information in its Universal Registration 

Documents (URD), Integrated Report, and TCFD 

Report. It adheres to SASB standards as well as 

TCFD recommendations. 

413See The Costs of Climate Disclosure: Three 

Case Studies on the Cost of Voluntary ClimateRelated Disclosures, Duke Law School: Global 

Financial Markets Center (Dec. 2021). 

414See section III.B.5 (for detailed discussion). 

415There are some research about the relationship 

between assurance on disclosed information and 

investment decisions. Professional investors 

attribute increased credibility to assured 

sustainability disclosures, which eventually lead to 

favorable investment decisions such as investing 

themselves in the company or recommending the 

purchase of shares to their clients. See Reiner Quick 

and Petra Inwinkl, Assurance on CSR Reports: 

Impact on the Credibility Perceptions of NonFinancial Information by Bank Directors, 28(5) 

Meditari Accountancy Research 833–862 (2020); see 

also Daniel Reimsbach, Rudiger Hahn, Anil 

Gu ̈rtu ̈rk, Integrated Reporting and Assurance of 

Sustainability Information: An Experimental Study 

on Professional Investors’ Information Processing, 

27(3) European Accounting Review 559–581 (2017). 

utilizes external services to disclose 

GHG metrics, the incremental costs 

associated with obtaining additional 

external services to comply with the 

proposed requirements would be lower. 

Furthermore, since the above costs for 

external data providers are reported at 

the institution level, corresponding 

costs borne by a fund would be a 

fraction of these reported costs. Because 

emissions data are currently not located 

in one place, some institutions may 

elect to subscribe to data services, 

instead of expending internal resources, 

to gather portfolio companies’ public 

emissions data.407 In addition, some 

may elect to hire external experts to 

complement their internal expertise or 

while they develop certain 

capabilities.408

Instead of or in combination with 

obtaining services from external ESG 

providers, some funds may reallocate 

internal staff resources or hire new staff 

in response to the proposed GHG 

metrics requirements. According to a 

survey of financial institutions that 

already disclose financed emissions, a 

majority (56 percent) of financial 

institutions reported that their 

employees spent 50 to 100 days to 

measure financed emissions.409 These 

staff hours were reported at the 

institution level, thus the burden at the 

fund level would be lower. The 

increased staff hours could be devoted 

to various activities such as sourcing 

emission data, conducting analyses, and 

preparing disclosures. Many of these 

activities would occur on an ongoing 

basis, not just one-time, to comply with 

the proposal. However, once 

appropriate compliance systems and 

structures are established in the first 

year, many of these activities could be 

accomplished with fewer resources in 

the following years, and thus, funds 

would incur slightly lower compliance 

costs for the following years. In sum, 

funds subject to the proposal would 

incur higher compliance costs to 

calculate and disclose required GHG 

metrics. To the extent that funds would 

incur costs to comply with this 

proposal, larger fund families would 

likely experience economies of scale in 

complying with the proposed 

requirements compared to smaller fund 

families. The increased costs could 

ultimately be passed on to investors, to 

some degree, in certain environmentally 

focused funds in the form of higher 

expenses or fees. 

To the extent that some funds already 

calculate GHG metrics at the portfolio 

level and disclose them, high 

compliance costs could be mitigated. As 

discussed above, some funds voluntarily 

adhere to third-party frameworks and 

are currently publicly disclosing GHG 

metrics. Such funds may be familiar 

with the two proposed GHG metrics as 

they are generally consistent with the 

standards developed by the PCAF (a 

measure similar to portfolio carbon 

footprint) and the TCFD (WACI). In 

addition, some multinational asset 

managers may disclose GHG metrics of 

funds they offer to clients in pursuant 

to other regulator’s requirements.410

Accordingly, to the extent the GHG 

metric disclosures overlap, such funds 

would likely incur lower compliance 

costs attributable to the proposed GHG 

metrics requirement than other funds. 

For instance, a large multinational 

financial institution indicated that the 

costs to produce its first TCFD climaterelated disclosure report did not exceed 

$100,000 at the institution level.411 The 

same financial institution reported that 

as a large institution that adheres to 

multiple frameworks, the costs to 

produce climate-related disclosures 

range between $250,000 and 

$500,000.412 However, for this 

particular financial institution, the 

annual cost, as a percentage of revenue, 

to produce voluntary climate 

disclosures is less than one tenth of one 

percent.413 The costs referenced above 

are not directly applicable in assessing 

the compliance costs associated with 

these proposed GHG metrics 

requirements because this proposal’s 

scope and requirements are more 

narrowly tailored to certain funds with 

a climate related focus and also because 

the proposed requirements are applied 

at the fund level, not at the institution 

level. Similar to this financial 

institution, some U.S. asset managers 

adhere to third-party frameworks and 

issue voluntary climate reports 

including GHG metrics of portfolios that 

they manage.414 These asset managers, 

and the funds managed by these asset 

managers, would incur lower 

incremental costs to comply with this 

proposal. In this regard, asset managers 

currently disclosing GHG metrics in 

accordance with a third-party 

framework may have a competitive 

advantage over other asset managers. 

Separate from the increased 

compliance costs, if many 

environmentally focused funds rely on 

estimations due to the lack of publicly 

available emissions data, some investors 

may consider GHG metrics of such 

funds less reliable and may potentially 

invest less in environmentally focused 

funds.415 As discussed above, some 

asset managers rely on information 

provided by ESG providers. However, 

one report suggests that ESG providers 

often focus on large-cap companies, 

thus providing a limited coverage for 


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416See Int’l Platform on Sustainable Fin., supra 

footnote 307. 

417 Id. 

418Companies report their global GHG emissions 

to the CDP. Companies are further encouraged to 

report their global GHG emissions broken down 

into five sub-categories, (i) Activities, (ii) Business 

Units, (iii) Facilities, (iv) GHG types and (v) 

Regions. One study examined these voluntary 

disclosures to the CDP. According to this study, if 

companies follow the Precautionary Principle (‘If in 

doubt, err on the side of the planet not on the side 

of the company’) thus act ‘‘in good faith,’’ global 

GHG emissions would be larger than the sum of 

breakdowns. This study estimated the percentage of 

companies that violate a ‘‘good-faith’’ estimation 

principle (i.e. global GHG emissions are smaller 

than the sum of breakdowns). In 2019, 16.7 percent 

of companies failed to meet this test (i.e. reported 

global emissions are smaller than the sum of 

breakdowns), suggesting that companies did not act 

in good faith. It is worth noting that this study 

examined the corporate issuers’ disclosures. 

Therefore, the findings of this study may not be 

applicable to funds’ disclosures. See Sergio Garcia 

Vega, Andreas G. F. Hoepner, Joeri Rogelj, and 

Frank Schiemann, Carbon Disclosure Quality: Oil & 

Gas, UCD Michael Smurfit Graduate Business 

School (Nov. 2021). 

419See NGFS, Progress Report on Bridging Data 

Gap (May 2021), available at https://www.ngfs.net/ 

sites/default/files/medias/documents/progress_

report_on_bridging_data_gaps.pdf, supra footnote 

343. 

420We analyzed data from form N–PORT to better 

understand asset holdings of funds with names 

containing ‘‘Sustainable,’’ ‘‘Responsible,’’ ‘‘ESG,’’ 

‘‘Climate,’’ ‘‘Carbon,’’ or ‘‘Green’’ as of Sept. 2021. 

According to this analysis, less than 1% of holdings 

are in derivative securities. Note that the data used 

in this analysis may undercount or over-count 

funds incorporating ESG factors in their investment 

strategies. For instance, some mutual funds and 

ETFs may not have fund names containing these 

ESG-related terms, although they incorporate on 

ESG factors in their investment strategies. In this 

respect, this estimate may undercount the number 

of funds with ESG strategies. Some funds with 

names containing ESG terms, however, may 

consider ESG factors along with many other factors 

in their investment decisions. In this respect, this 

estimate may then over-count the number of funds 

with ESG strategies. 

421See proposed Instruction 1(d)(x) of Item 

27(b)(7)(i)(E) of Form N–1A; proposed Instruction 

1(d)(x) of Item 24.4.g.(2)(B) of Form N–2. 

422See section III.B.2 (for more detailed 

discussion). 

423See CDP Report, supra footnote 119. 

424 In an international survey of financial 

institutions, the metric most commonly disclosed 

by asset managers was the WACI (12%), followed 

by exposure to carbon-related assets, carbon 

intensity, other, and (Portfolio) carbon footprint, in 

descending order. Id. 

425See discussion in section III.B.5. 

the carbon footprint.416 In particular, 

the absolute availability of Scope 1 

emissions (percent of firms) in the U.S. 

was 10.8 percent.417 This limitation in 

the data may inadvertently limit the 

investment options in constructing 

portfolios and lead to 

overrepresentation of certain types of 

companies in portfolios. Thus, this 

could result in less reliable and less 

representative emission metrics. 

Therefore, fund managers may need to 

take extra steps to ensure that GHG 

metrics are reliable and consistent with 

good-faith estimations.418 To do so, 

fund managers may need to ensure that 

they rely on information from data 

services with adequate coverage per 

asset class, sound methodologies to 

estimate missing values, and quality 

assurance.419 Otherwise, this may direct 

capital to certain types of companies, 

which may lead to less efficient capital 

allocations. 

Under the proposal, a wide range of 

asset classes including derivatives 

would be included in calculating GHG 

metrics. We understand funds may 

incur some costs to calculate the values 

of the derivatives to comply with this 

proposed requirement. However, we 

also understand ESG funds currently 

hold relatively small derivatives 

positions.420 Therefore, we anticipate 

costs associated with incorporating 

derivatives in GHG metrics would not 

be substantial. 

An environmentally focused fund 

would also be required to disclose the 

financed Scope 3 emissions of its 

portfolio companies, to the extent that 

Scope 3 emissions data is reported by 

the fund’s portfolio companies.421 The 

proposal would also require funds to 

use Scope 3 emissions that are reported 

by a portfolio company in the 

company’s most recently filed 

regulatory report, if available. In the 

absence of reported Scope 3 emissions 

data from a portfolio company in a 

regulatory report, the fund would be 

required to use Scope 3 emissions 

information that is otherwise publicly 

provided by the portfolio company, 

such as a publicly available 

sustainability report published by the 

company. By requiring funds to disclose 

Scope 3 emissions only to the extent 

that Scope 3 emissions data are publicly 

available, funds would not have to 

estimate Scope 3 emissions of portfolio 

companies. Therefore, the compliance 

burden associated with this requirement 

would be somewhat alleviated. 

Otherwise, the compliance costs could 

be higher because most Scope 3 

emissions data would be estimated and 

also funds may need to take extra steps 

to ensure the quality of Scope 3 

estimates. In addition, funds would be 

required to disclose Scope 3 emissions 

using a portfolio carbon footprint metric 

alone, not the WACI, thus the 

compliance costs would be relatively 

contained while still providing useful 

information to investors. 

While certain environmentally 

focused funds would be required to 

calculate and disclose GHG metrics, 

funds promoting social or governance 

related goals would not be required to 

provide these quantified metrics. As a 

result, compliance costs for S- or Gfocused funds would be substantially 

lower than E-focused funds. To the 

extent that investors view S- and Gfocused funds as substitutes for Efocused funds, the proposal may create 

a competitive disadvantage for the latter 

and comparatively disfavor growth in 

those funds. Similarly, the proposed 

rules may lead to the growth of the 

private funds over registered funds, as 

the proposed rules do not require 

environmentally focused private funds 

to calculate and disclose GHG metrics. 

In this regard, the proposed rules may 

affect capital allocations among E-, Sand G-focused funds and also capital 

allocation between registered funds and 

private funds within E-focused funds. 

However, some private funds have 

committed to voluntarily reporting GHG 

emissions of underlying portfolio 

companies.422 Therefore, to the extent 

that private funds report GHG emissions 

and other ESG-related data, concerns 

that the proposed requirements on 

registered funds may potentially direct 

more capital toward private funds and 

thus favor more growth in private funds, 

would be mitigated. 

By requiring certain metrics over 

other ones available in the market, the 

proposed rules may influence current 

voluntary industry practices and 

dissuade the industry from using or 

developing alternative metrics, and thus 

may discourage innovations in this area. 

While according to an international 

survey,423 the WACI was the most 

commonly disclosed metric, there are 

other metrics voluntarily disclosed by 

some financial institutions.424 However, 

we understand that the proposed GHG 

metrics have been gaining a wide 

acceptance in many market participants 

and third-party ESG frameworks have 

been coalescing around them.425 In this 

regard, we do not anticipate this choice 

of metrics to disrupt current market 

trends. Instead, it may solidify the 

existing trend toward reporting the two 

required metrics. Further, many 

common alternative metrics (e.g. carbon 

intensity) are simple variations of the 

two required metrics (e.g. portfolio 

carbon footprint) that would involve 

little additional data collection or effort 

to report. Nonetheless, under the 

proposal, funds currently providing the 

required metrics may have a slight 

competitive advantage over funds 

currently providing alternative metrics. 

If more corporate issuers publicly 

disclose their emissions, it would 

reduce the compliance costs of this 


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36716 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

426For example, if the Climate Disclosure 

Proposing Release were to be adopted as proposed, 

corporate issuers would be required to disclose 

certain GHG emissions metrics in their regulatory 

filings with the Commission. Such information 

could then be used by environmentally focused 

funds to calculate their GHG emission metrics 

under this proposal, if the proposal is adopted as 

proposed. 

427See supra section III.B.5.e (for more detailed 

discussion). 

428See supra section III.B.5.b. 

429See, e.g., Yu Cong, Jia Hao, and Lin Zou, The 

Impact of XBRL Reporting on Market Efficiency, 28 

J. Info. Sys. 181 (2014) (finding support for the 

hypothesis that ‘‘XBRL reporting facilitates the 

generation and infusion of idiosyncratic 

information into the market and thus improves 

market efficiency’’); Yuyun Huang, Jerry T. 

Parwada, Yuan G. Shan, and Joey Yang, Insider 

Profitability and Public Information: Evidence From 

the XBRL Mandate (Working Paper) (2019) (finding 

XBRL adoption levels the informational playing 

field between insiders and non-insiders); Patrick A. 

Griffin, Hyun A. Hong, Joo-Baek Kim, and Jee-Hae 

Lim, The SEC’s XBRL Mandate and Credit Risk: 

Evidence on a Link between Credit Default Swap 

Pricing and XBRL Disclosure, 2014 American 

Accounting Association Annual Meeting (2014) 

(finding XBRL reporting enables better outside 

monitoring of firms by creditors, thus leading to a 

reduction in firm default risk), Jeff Zeyun Chen, 

Hyun A. Hong, Jeong-Bon, and Kim Ji Woo Ryou, 

Information Processing Costs and Corporate Tax 

Avoidance: Evidence from the SEC’s XBRL Mandate 

40 J. Account. Pub. Pol. 2 (2021); (finding XBRL 

reporting decreases likelihood of firm tax avoidance 

because ‘‘XBRL reporting reduces the cost of IRS 

monitoring in terms of information processing, 

which dampens managerial incentives to engage in 

tax avoidance behavior’’); Jap Efendi, Jin Dong Park, 

and Chandra Subramaniam, Does the XBRL 

Reporting Format Provide Incremental Information 

Value? A Study Using XBRL Disclosures During the 

Voluntary Filing Program, 52 Abacus 259 (2016) 

(finding XBRL filings have larger relative 

informational value than HTML filings); Jacqueline 

L. Birt, Kala Muthusamy, Poonam Bir, XBRL and 

the Qualitative Characteristics of Useful Financial 

Information, 30 Account. Res. J. 107 (2017) (finding 

‘‘financial information presented with XBRL tagging 

is significantly more relevant, understandable and 

comparable to non-professional investors’’); Steven 

F. Cahan, Seokjoo Chang, Wei Z. Siqueira, Kinsun 

Tam, The Roles of XBRL and Processed XBRL in 10– 

K Readability, J. Bus. Fin. Account (2021) (finding 

10–K file size reduces readability before XBRL’s 

adoption since 2012, but increases readability after 

XBRL adoption, indicating ‘‘more XBRL data 

improves users’ understanding of the financial 

statements’’). 

430Other information intermediaries that have 

used XBRL disclosures may include financial 

media, data aggregators and academic researchers. 

See, e.g., N. Trentmann, Companies Adjust 

Earnings for Covid–19 Costs, But Are They Still a 

One-Time Expense?, The Wall Street Journal (2020) 

(citing XBRL research software provider Calcbench 

as research source); Bloomberg Lists BSE XBRL 

Data, XBRL.org (2018); Rani Hoitash and Udi 

Hoitash, Measuring Accounting Reporting 

Complexity with XBRL, 93 Account. Rev. 259–287 

(2018). 

431See, e.g., Andrew J. Felo, Joung W. Kim, and 

Jeehae Lim, Can XBRL Detailed Tagging of 

Footnotes Improve Financial Analysts’ Information 

Environment? 28 Int’l J. Account. Info. Sys. 45 

(2018); Yuyun Huang, Yuan G. Shan, and Joey W. 

Yang, Information Processing Costs and Stock Price 

Informativeness: Evidence from the XBRL Mandate, 

46 Aust. J. Mgmt. 110–131 (2020) (finding ‘‘a 

significant increase of analyst forecast accuracy 

post-XBRL’’); Marcus Kirk, James Vincent, and 

Devin Williams, From Print to Practice: XBRL 

Extension Use and Analyst Forecast Properties 

(Working Paper) (2016) (finding ‘‘the general trend 

in forecast accuracy post-XBRL adoption is 

positive’’); Chunhui Liu, Tawei Wang, and Lee J. 

Yao, XBRL’s Impact on Analyst Forecast Behavior: 

An Empirical Study, 33 J. Account. Pub. Pol. 69– 

82 (2014) (finding ‘‘mandatory XBRL adoption has 

led to a significant improvement in both the 

quantity and quality of information, as measured by 

analyst following and forecast accuracy’’). But see 

Sherwood L. Lambert, Kevin Krieger, and Nathan 

Mauck, Analysts’ Forecasts timeliness and 

Accuracy Post-XBRL, 27 Int’l. J. Account. Info. 

Mgmt. 151–188 (2019) (finding significant increases 

in frequency and speed of analyst forecast 

announcements, but no significant increase in 

analyst forecast accuracy post-XBRL). 

432See supra footnote 282 (and accompanying 

text). Similarly, retail investors in operating 

companies have generally been observed to rely on 

analysts’ interpretation of company disclosures 

rather than reading the disclosures themselves. See, 

e.g., Alastair Lawrence, James P. Ryans, and Estelle 

Y. Sun, Investor Demand for Sell-Side Research, 92 

Account. Rev. 123–149 (2017) (finding the ‘‘average 

retail investor appears to rely on analysts to 

interpret financial reporting information rather than 

read the actual filing’’); Daniel Bradley, Jonathan 

Clarke, Suzanne Lee, and Chayawat Ornthanalai, 

Are Analysts’ Recommendations Informative? 

Intraday Evidence on the Impact of Time Stamp 

Delays, 69 J. Fin. 645–673 (2014) (concluding 

‘‘analyst recommendation revisions are the most 

important and influential information disclosure 

channel examined’’). 

proposal.426 Moreover, the data 

disclosed by corporate issuers through 

regulatory filings would be higher 

quality and more reliable. In addition, 

fund managers would be able to obtain 

most of the emissions data from one 

location through regulatory filings, thus 

reducing the time and resources used 

for collecting such data. As a result, if 

more corporate issuers disclose their 

emissions through regulatory filings 

with the SEC, fund managers would 

incur lower costs to obtain, process, and 

analyze the emissions data underlying 

such investments. In this regard, the 

costs for funds (and to their investors 

and clients, to the extent that such costs 

are passed down) to produce the 

proposed GHG metrics would be 

reduced to the extent that underlying 

emissions data would be more 

comprehensive, easier to obtain, better 

prepared for use, and easily verifiable. 

Under the current regulatory regime, 

funds need to collect and compile 

underlying data themselves or rely on 

services from ESG providers.427

Therefore, smaller funds with fewer 

resources may be at a competitive 

disadvantage to larger funds with more 

resources. However, if more corporate 

issuers disclose their emissions through 

regulatory filings, it may enhance the 

competitiveness of smaller funds 

relatively more than larger funds.428

(d) Inline XBRL 

(1) Benefits 

The additional provision requiring 

Inline XBRL tagging of the new ESG 

disclosures in fund registration 

statements (filed on Forms N–1A, N–2, 

N–8B–2, and S–6) and in fund annual 

reports (filed on Form N–CSR or Form 

10–K) would benefit investors by 

making the disclosures more readily 

available for aggregation, comparison, 

filtering, and other analysis, thus 

increasing transparency. XBRL 

requirements for public operating 

company financial statement 

disclosures have been observed to 

reduce information processing and 

agency costs, thus increasing 

transparency by infusing more 

company-specific information into the 

investment markets.429 Investors with 

access to XBRL analysis software may 

directly benefit from the availability of 

the fund ESG disclosures in Inline 

XBRL, whereas other investors may 

indirectly benefit from the processing of 

Inline XBRL disclosures by information 

intermediaries such as financial 

analysts.430 In that regard, XBRL 

requirements for public operating 

company financial statement 

disclosures have been observed to 

increase the number of companies 

followed by analysts, decrease analyst 

forecast dispersion, and, in some cases, 

improve analyst forecast accuracy.431

Should similar impacts on the 

informational environment of analysts 

arise from fund ESG disclosure tagging 

requirements, this would likely enhance 

the informational environment of fund 

investors (both retail and institutional) 

as well, because there is evidence that 

fund investors are influenced by 

analysts’ assessments of funds, 

including their sustainability ratings.432

While the observations related to 

Inline XBRL tagging cited above are 

specific to operating company financial 

statement disclosures (including both 

quantitative and qualitative disclosures 

in face financial statements and 

footnotes), and not to non-financial 

statement disclosures from investment 

companies such as the proposed fund 

ESG disclosures, they indicate that the 

proposed Inline XBRL requirements 

could directly or indirectly provide 

investors with increased insight into 

ESG-related information (such as 

strategies, proxy voting policies, GHG 

metrics, et al.) at specific funds and 

across funds, asset managers, and time 

periods. 

(2) Costs 

With respect to the Inline XBRL 

tagging requirements under the 

proposed amendments, these 


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433See infra section IV.E (summarizing the initial 

and ongoing burden estimates associated with the 

proposed tagging requirements for Forms N–1, N– 

2, N–8B–2, S–6, N–CSR, and 10–K. For current 

XBRL filers (i.e., funds other than unit investment 

trusts), we estimate the tagging requirements would 

impose an initial internal cost of $854 per fund (2.4 

hours * $356 hourly wage rate = $854), an annual 

internal cost of $356 per fund (1 hour * $356 hourly 

wage rate = $356), and an annual external cost of 

$50 per fund. For new XBRL filers (i.e., unit 

investment trusts), we estimate the tagging 

requirements would impose an initial internal cost 

of $4,272 per fund (12 hours * $356 hourly wage 

rate = $4,272), an annual internal cost of $1,780 per 

fund (5 hours * $356 hourly wage rate = $1,780), 

and an annual external cost of $1,000 per fund). 

434An American Institute of Certified Public 

Accountants (‘‘AICPA’’) survey of 1,032 public 

operating companies with $75 million or less in 

market capitalization in 2018 found an average cost 

of $5,850 per year, a median cost of $2,500 per year, 

and a maximum cost of $51,500 per year for fully 

outsourced XBRL creation and filing, representing 

a 45% decline in average cost and a 69% decline 

in median cost since 2014. See Michael Cohn, 

AICPA Sees 45% Drop in XBRL Costs for Small 

Companies, Accounting Today (Aug. 15, 2018) 

available at https://www.accountingtoday.com/ 

news/aicpa-sees-45-drop-in-xbrl-costs-for-smallreporting-companies. Note that this survey was 

limited to small operating companies; investment 

companies have substantively different tagging 

requirements, and may have different tagging 

processes as well. For example, compared to 

smaller operating companies, smaller investment 

companies are more likely to outsource their 

tagging infrastructure to large third-party service 

providers. As a result, it may be less likely that 

economies of scale arise with respect to Inline 

XBRL compliance costs for investment companies 

than for operating companies. Additionally, a 

NASDAQ survey of 151 listed issuers in 2018 found 

an average XBRL compliance cost of $20,000 per 

quarter, a median XBRL compliance cost of $7,500 

per quarter, and a maximum XBRL compliance cost 

of $350,000 per quarter in XBRL costs per quarter. 

See letter from Nasdaq, Inc. (Mar. 21, 2019), 

Request for Comment on Earnings Releases and 

Quarterly Reports, Release No. 33–10588 (Dec. 18, 

2018) [83 FR 65601 (Dec. 21, 2018)]. Like the 

aforementioned AICPA survey, this survey was 

limited to operating companies. 

435See supra footnotes 184–186. 

436See infra section IV.E. To the extent unit 

investment trusts are part of the same fund family 

as other types of funds that are subject to Inline 

XBRL requirements, they may be able to leverage 

those other funds’ existing Inline XBRL tagging 

experience and software, which would likely 

mitigate the initial Inline XBRL implementation 

costs that unit investment trusts would incur under 

the proposal. 

437See supra section III.C.2.a. 

438See Sunita Sah and George Loewenstein, 

Nothing to Declare: Mandatory and Voluntary 

Disclosure Leads Advisors to Avoid Conflicts of 

Interest, 25.2 Psychological Science 575–584 (2014). 

This experimental study suggests that when an 

adviser needs to disclose conflicts of interest, the 

adviser eliminates conflicts of interest, thus the 

adviser could disclose only the absence of conflicts 

of interest. 

439Based on the results of the PRA analysis, the 

annual direct paperwork cost burdens attributable 

to information collection requirements in the 

proposed amendments to both Form ADV Part 2A 

and Part 1A would be approximately $912.75 per 

RIA, $83.85 per ERA, and $55.90 per private fund 

advised. 

requirements would result in additional 

compliance costs for funds that hold 

themselves out as implementing ESG 

strategies and marketing themselves to 

investors or clients as such, because 

such funds will be required to tag and 

review the newly required ESG 

disclosures in registration statements 

and annual reports before filing them 

with the Commission.433 Various XBRL 

and Inline XBRL preparation solutions 

have been developed and used by 

operating companies and investment 

companies to fulfill their structuring 

requirements, and some evidence 

suggests that, for smaller operating 

companies, XBRL compliance costs 

have decreased over time.434

In addition, all registered open- and 

closed-end funds and BDCs are 

currently subject to Inline XBRL 

structured data requirements.435 As 

such, to the extent these funds comply 

with Inline XBRL compliance 

requirements internally rather 

outsourcing to an external service 

provider, they may already be familiar 

with Inline XBRL compliance software 

and may be able to leverage existing 

Inline XBRL preparation processes and/ 

or expertise in complying with the 

proposed fund ESG disclosure 

requirements. This would limit the 

compliance costs arising from the 

proposed tagging requirements to only 

those costs related to selecting 

additional Inline XBRL tags for the new 

fund ESG disclosures and reviewing the 

tags selected. By contrast, unit 

investment trusts are not be subject to 

current or forthcoming Inline XBRL 

requirements in their Commission 

filings, so they would incur 

comparatively higher compliance costs 

as a result of the Inline XBRL tagging 

requirements under the proposed 

amendments.436 We anticipate that such 

compliance costs would be borne by the 

funds, and that the costs may ultimately 

be passed on to investors by way of 

higher expenses or fees.437

(e) Adviser Brochure (Form ADV Part 

2A) 

(1) Benefits 

The proposed amendments to the 

adviser brochure would benefit clients 

and prospective clients in a similar way 

that proposed disclosures by funds 

would benefit investors. The proposed 

amendments to adviser brochure (Form 

ADV Part 2A) are designed to provide 

clients with information that covers the 

same topics as the proposed 

requirements for funds considering 

ESG-related factors. Specifically, the 

additional information from the 

proposed amendments would allow 

clients and prospective clients to better 

evaluate the ESG-related services that 

advisers offer and thus increase 

comparability across advisers. Because 

adviser brochures usually encompass 

the entirety of an adviser’s lines of 

businesses, the proposal would benefit 

clients and prospective clients by 

enhancing their understanding of how 

the advisers consider ESG factors when 

providing investment recommendations 

or making investment decisions. As a 

result, the proposed disclosures would 

help clients in selecting advisers that 

are aligned with their investment 

objectives. 

Additionally, the brochure discloses 

key aspects of the advisory relationship, 

including relationships with affiliates 

and third party ESG providers that may 

present conflicts of interest and affect 

the adviser-client relationship. This 

information would be particularly 

beneficial to prospective clients by 

allowing them to make an informed 

decision when they select advisers. 

Furthermore, disclosing conflicts of 

interest could itself lessen the severity 

of the agency problem in relationships 

between advisers and clients.438 The 

requirement to disclose potential 

conflicts of interests could enhance 

allocative efficiency by allowing 

investors to better match with advisers 

based on their preferences, and 

furthermore, increase competition 

among advisers. Additionally, it could 

promote competition among ESG 

providers in the dimensions of the 

quality and the reliability of the ratings 

and data that they provide to advisers 

and clients. 

(2) Costs 

Because the proposed amendments to 

the adviser brochure (Form ADV Part 

2A) share many similarities with the 

proposed fund disclosures, many of the 

same cost elements associated with fund 

prospectuses and annual reports would 

be applicable for adviser brochures as 

well.439 If advisers provide multiple 

lines of ESG-related business services, 

those advisers would incur higher costs 

as they would be required to provide 

detailed disclosures encompassing their 

entire business. In this regard, the 

effects of size on compliance costs 

would be less clear for advisers, because 

advisers with complicated business 

structures may not achieve economies of 

scale in complying with the proposed 

rules. If larger advisers tend to provide 

multiple lines of ESG related services to 

various types of clients including SMA 

clients and private funds, the 

advantages of large size may be less 

applicable. Conversely, for smaller 

advisers providing more specialized 


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440As discussed in section II.B.X., a fund would 

be required to indicate whether or not it 

incorporates ESG factors. A fund that does 

incorporate ESG factors would then be required to 

report, among other things: (i) the type of ESG 

strategy it employs (i.e., Integration, Focused, or 

Impact), (ii) the ESG factor(s) it considers (i.e., E, 

S, and/or G); (iii) the method it uses to implement 

its ESG strategy (i.e., tracking an index, applying an 

exclusionary and/or inclusionary screen, and/or 

engaging with issuers) and (v) if applicable, 

whether it considers ESG factors as part of its proxy 

voting policies and procedures. See Proposed Item 

C.3(j)(i) through (v) of Form N–CEN. The proposed 

amendments to Form N–CEN does not apply to 

BDCs because they do not file Form N–CEN. See 

supra footnote 166. 

441Proposed item C.3(j)(iv) of Form N–CEN. 

442Proposed item C.3(j)(vi) of Form N–CEN. 

443See proposed Item C.3(b)(i) of Form N–CEN. 

444A LEI would provide more accurate 

identification of an index than using the name of 

the index alone, because different sources may use 

different variations on an index’s name (e.g., 

different abbreviations or punctuation), whereas an 

index’s LEI is unique and unchanging. 

services to a certain clientele alone, the 

compliance cost increase would be 

accordingly low. Generally, compliance 

costs would be mitigated to the extent 

that some advisers incorporating ESG 

factors already disclose ESG-related 

information in their adviser brochure. 

In addition, the proposed 

requirements may lead advisers to 

conduct reviews of their policies and 

procedures governing ESG-related 

investment strategies and services, and 

refine their policies and procedures 

accordingly. For instance, an adviser 

may review its current policies and 

procedures concerning the procurement 

of the third-party ESG providers. As a 

result of such a review, an adviser may 

decide to modify its policies and 

procedures, and/or change its current 

practices concerning the procurement of 

ESG providers. Implementing these 

changes could increase compliance 

costs, which could ultimately, at least to 

some degree, be passed on to clients in 

the form of higher fees. 

3. Regulatory Reporting 

As discussed above, we are proposing 

to amend Forms N–CEN and ADV Part 

1A for funds and advisers, respectively, 

to collect census-type information about 

funds’ and advisers’ use of ESG factors 

and ESG providers. Because each of 

Form N–CEN and Form ADV Part 1A is 

submitted in a structured, XML-based 

data language specific to that Form, the 

proposed census-type information 

would be structured (i.e., machinereadable). 

(a) Form N–CEN 

We propose to amend Form N–CEN to 

add proposed Item C.3(j) that would ask 

questions tailored to an ESG fund’s 

strategies and processes, including ESG 

factors it considers, ESG strategies 

employed, and, if applicable, whether it 

engages in proxy voting or engagement 

with issuers to implements its ESG 

strategy.440 The proposed amendments 

to Form N–CEN would also collect 

information regarding whether a fund 

considers ESG-related information or 

scores provided by ESG providers in 

implementing its investment strategy.441

If so, the fund would be required to 

provide the legal name and LEI, if any, 

or provide and describe any other 

identifying number of each such ESG 

provider. A fund would also be required 

to report whether the ESG provider is an 

affiliated person of the fund. Further, 

the proposed amendments to Form N– 

CEN would require a fund to report 

whether the fund follows any thirdparty ESG frameworks.442 Also, index 

funds would be required to report the 

name and legal identifier (if applicable) 

of the index the funds track.443

(1) Benefits 

The proposed amendments to Form 

N–CEN would complement the 

proposed narrative forms of investor 

facing disclosures by collecting 

structured ESG-specific information 

designed to provide the Commission, 

investors, and other users of the data, 

such as ESG providers, with consistent 

and comparable data. The structured 

(i.e., machine-readable) nature of the 

information would enhance the ability 

of the Commission, investors, and other 

market participants to more effectively 

analyze data reported through Form N– 

CEN. For example, although ESG 

strategies and processes employed by 

the fund are disclosed in narrative forms 

in the fund’s prospectus and annual 

report, the additional information 

collected through Form N–CEN would 

allow the Commission, investors and 

other market participants to easily 

identify and compare funds by the ESG 

factors the funds incorporate, the ESG 

strategies the funds employ, and 

whether ESG factors are considered as 

part of the funds’ proxy voting policies 

and procedures. Investors and clients 

would benefit specifically as they could 

use this data from N–CEN, together with 

the narrative ESG information we are 

proposing in investor-and client-facing 

disclosures, to make more informed 

decisions about their selection of funds 

or advisory services that consider ESG 

factors. 

The information collected on whether 

the ESG provider is an affiliated person 

of the fund would assist the 

Commission to more efficiently assess 

and monitor potential conflicts of 

interest and risks created by fund’s 

relationship with an affiliated ESG 

provider, which would allow the 

Commission to respond more effectively 

if needed, or inform the Commission in 

regulatory policies, examinations, or 

enforcement actions. Such collection of 

information could also benefit investors 

and other market participants in 

monitoring conflicts of interest that 

could exist when an ESG provider is 

also an affiliated person of the fund. 

The information collected on use of 

ESG providers would benefit investors, 

other market participants, and the 

Commission in helping to better 

compare and analyze how ESG 

strategies differ across ESG providers. 

For instance, the proposed amendments 

to Form N–CEN would allow investors 

to more easily compare ESG providers 

and assess the effectiveness of strategies 

employed by funds using such 

providers. As a result, investors would 

be able to better select funds based on 

providers used, which could lead to 

increased competition among ESG 

providers. Moreover, such increased 

competition among ESG providers could 

encourage the development of new 

methodologies in ESG ratings and in 

indexes tracking ESG factors, which 

could stimulate more innovation in this 

area. Enhanced transparency and 

comparability among ESG providers and 

indexes would improve investors’ 

confidence in these instruments, thus 

facilitate capital formation. 

Similarly, as in investor facing 

disclosures, an ESG-Focused Fund 

would be required to name any thirdparty ESG frameworks it follows under 

the proposed amendments to Form N– 

CEN. As part of an ESG strategy, this 

information would help the 

Commission, investors and other market 

participants to better understand and 

assess trends in the market based on the 

frameworks. 

In addition, we propose to amend 

Form N–CEN to require all funds 

tracking an index, including ESGFocused Funds tracking a certain index, 

to report the name and LEI, if any, or 

provide and describe any other 

identifying number of the index the 

funds track. This proposed amendment 

would benefit the Commission, 

investors and other market participants 

because it would allow them to more 

efficiently identify the use of particular 

indexes across the fund industry.444

We additionally believe investors 

would benefit as they could use this 

data from Form N–CEN, together with 

the narrative ESG information we are 

proposing in investor-facing disclosures, 

to make more efficient and informed 

decisions about their selection of funds 


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445Based on the results of the PRA analysis, the 

annual direct paperwork cost burdens attributable 

to information collection requirements in the 

proposed amendments to Form N–CEN would be 

approximately $351 per fund for ESG related 

disclosure requirements and $157.50 per fund for 

index fund related requirements. 

446See supra section II.C.2. 447See supra section II.C.3.b. 

448Based on the results of the PRA analysis, the 

annual direct paperwork cost burdens attributable 

to information collection requirements in the 

proposed amendments to both Form ADV Part 2A 

and Part 1A would be approximately $912.75 per 

RIA, $83.85 per ERA, and $55.90 per private fund 

advised. 

or advisory services that consider ESG 

factors, which would also promote 

competition and capital formation. 

(2) Costs 

Funds that incorporate ESG factors 

into their investment strategies would 

incur costs associated with the proposed 

amendments to Form N–CEN. The 

incremental cost associated with these 

requirements would not be substantial, 

however, because most of the 

information required to be reported on 

Forms N–CEN would be already 

collected, reviewed and prepared to 

comply with the proposed requirements 

of investor facing narrative disclosures. 

However, to the extent that the 

proposed amendments to Form N–CEN 

would require additional data elements 

not required in investor facing 

disclosures, the compliance costs of the 

proposed Form N–CEN amendments 

would increase, which could ultimately 

be passed on to investors to some degree 

in the forms of higher expenses or fees. 

For instance, all index funds would 

incur costs to provide the information 

about what index it tracks. Any ESGFocused Funds relying on services from 

ESG providers would provide detailed 

information about ESG providers, such 

as legal name and LEI (if any), or 

provide and describe other identifying 

numbers of each such ESG provider. It 

would also show whether an ESG 

provider is an affiliated person of the 

fund. Thus, funds relying on multiple 

ESG providers would incur higher costs 

than funds that have no relationship 

with any ESG providers. In addition, 

larger fund families would likely 

experience economies of scale, which 

may create a competitive advantage for 

larger fund families compared to smaller 

fund families.445

(b) Form ADV Part 1A Reporting 

As discussed above, we are proposing 

amendments to Form ADV Part 1A 

designed to collect information about an 

adviser’s uses of ESG factors in its 

advisory business.446 Specifically, these 

proposed amendments would expand 

the information collected about the 

advisory services provided to SMA 

clients and private funds. 

(1) Benefits 

The information in Form ADV Part 1A 

would be generally the same as 

information we are proposing to collect 

on Form N–CEN regarding ESG factors, 

such as type of strategy (i.e., integration, 

focused, and impact). Also, like Form 

N–CEN, Form ADV Part 1A is submitted 

using a structured data language 

(specifically, an XML-based data 

language specific to Form ADV), so the 

new information would be structured 

(i.e., machine-readable). We believe 

collecting this information would 

provide the Commission and investors 

with important information about 

advisers’ considerations of ESG factors 

in their advisory businesses, including 

the specific factors they consider, the 

types of ESG-related strategies they 

employ, the use of voluntary third-party 

frameworks, and whether they conduct 

other business activities as ESG 

providers or have related persons that 

are ESG providers that could indicate 

potential conflicts of interest.447

This information would increase 

comparability across advisers and 

advance our regulatory goal of gaining a 

more complete understanding of 

advisers’ consideration of ESG factors in 

their SMA and private fund 

management businesses. We believe the 

proposed new reporting requirements 

would improve our ability to 

understand the ESG landscape and 

monitor trends among investment 

advisers in this emerging and evolving 

area. We also believe that the additional 

information would benefit current and 

prospective clients of SMAs and 

investors in private funds. In particular, 

SMA clients and investors in private 

funds would benefit from the proposed 

amendments to Form ADV Part 1A 

because they would be able to more 

efficiently select an adviser who meets 

their needs based on the additional 

information reported. This enhanced 

efficiency could in turn promote 

competition among advisers providing 

ESG-related services. Further, we 

believe the proposed reporting 

requirements would better allow the 

Commission to assess the potential 

conflicts of interest and risks created by 

relationships between advisers and 

affiliated ESG providers. We also 

believe that the proposed reporting 

requirements may assist the public in 

better understanding advisers’ conflicts 

of interests when using the services of 

affiliated ESG providers, or when the 

adviser offers ESG provider services to 

others. This better understanding could 

increase public confidence in advisers’ 

ESG-related service and further facilitate 

capital formation. 

Costs 

Investment advisers that incorporate 

ESG factors into their investment 

strategies would incur costs associated 

with the proposed amendments to Form 

ADV Part 1A. To the extent that advisers 

incur higher costs, the increased costs 

would be, at least in part, passed on to 

clients of SMAs and private funds, thus 

investors. The incremental cost 

associated with these requirements 

would not be substantial, however, 

because most of the information 

required to be reported on Form and 

ADV Part 1A would be already 

collected, reviewed and prepared to 

comply with the proposed amendments 

to adviser brochures (Form ADV Part 

2A). The proposed amendments to Form 

ADV Part 1A would require additional 

information that would not be disclosed 

in adviser brochures, such as the 

adviser’s use of ESG strategies for SMA 

clients and private funds. These 

additional requirements would result in 

additional compliance costs. Therefore, 

advisers whose business models contain 

many SMA clients and private funds 

would experience higher increases in 

compliance costs associated with Form 

ADV Part 1A proposed amendments 

relative to advisers without any SMA 

clients and private funds.448

D. Reasonable Alternatives 

1. Uniform Narrative Disclosure 

Requirements for ESG-Integration and 

Focused Funds 

The proposed amendments for 

registered funds are designed to require 

more or less detail about a fund’s ESG 

investing depending on the extent to 

which a fund considers ESG factors in 

its investment process. Specifically, 

Integration Funds would provide more 

limited disclosures, whereas ESGFocused Funds would be required to 

provide more detailed information. 

As an alternative, we could require 

Integration Funds to disclose the same 

level of detail about their ESG investing 

as ESG-Focused Funds. This option 

would, however, increase information 

processing costs for some investors as 

the distinction between Integration 

Funds and ESG-Focused Funds would 

be less salient. Thus, investors would 

sift through disclosures to determine 

whether a fund is an Integration or 

Focused Fund. Although some 

additional details about ESG investing 


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449See supra footnote 123 and accompanying 

text. 

provided by Integration Funds could be 

useful for some investors, the option 

also could require Integration Funds to 

provide lengthy disclosures about ESG 

investing and lead to Integration Funds 

overemphasizing their ESG credentials. 

Under this option, an investor may 

assume the fund considers ESG factors 

similarly to an ESG-Focused Fund with 

disclosures of similar length and detail, 

making it more difficult for the investor 

to select a fund investment that meets 

the investor’s expectations. We also 

considered requiring ESG-Focused 

Funds to provide the more detailed 

disclosures required by Impact Funds, 

but had similar concerns regarding such 

additional disclosures for investors. 

2. More Standardized Disclosures 

The proposed disclosures for 

registered funds and advisers are 

designed to provide ESG-related 

information in narrative formats as well 

as standardized formats. For instance, 

all ESG-Focused Funds would 

provide—in an ESG Strategy Overview 

table in the fund’s prospectus—concise 

ESG-related disclosure, in the same 

format and same location in a tabular 

format. Part of the ESG Strategy 

Overview table would be further 

standardized by utilizing a ‘‘check-box’’ 

format, while the rest would rely on 

brief descriptions provided by funds. 

Facilitating a layered disclosure 

approach, lengthier disclosure or other 

information would be provided later in 

the prospectus. Similarly, advisers 

would provide census-type information 

on Form ADV Part 1A about their uses 

of ESG factors. Proposed amendments to 

the Form ADV brochure (Part 2A 

brochure and Appendix 1, the Wrap Fee 

Program Brochure) would include 

information in a narrative form about 

ESG practices from advisers that 

incorporate ESG factors as part of their 

advisory business. 

As an alternative, we could require 

more standardized disclosures (without 

any narrative descriptions) for funds 

and advisers, for instance, by utilizing 

one standardized tabular format in a 

‘‘check the box’’ style. By having all 

information available in one location 

and in the same format, this alternative 

could further enhance the comparability 

across funds and advisers, respectively. 

However, this alternative approach may 

risk oversimplifying ESG-related 

information to fit in a pre-determined 

standardized format. For instance, funds 

and advisers would not be able to 

explain nuanced approaches or complex 

strategies if the information does not fit 

neatly within the standardized form. 

Under this approach, investors may lose 

details and nuances that could be 

valuable to their investment decisions. 

Further, ESG investing is still evolving 

in the market. As a result, if the predetermined standardized disclosure 

format becomes stale or outdated, the 

utility of the standardized disclosure 

could be further reduced. Considering 

these potential effects, we propose an 

approach that combines standardized 

disclosures with narrative disclosures, 

which could better assist investors by 

providing information consistently and 

concisely through standardized 

disclosures, while reserving the 

flexibility to contextualize ESG 

investing strategies and practices in 

descriptive, non-standardized 

disclosures. 

3. Alternative Approach to Layered 

Disclosure for Funds 

We are proposing certain specified 

disclosures to go in the summary 

section of the prospectus or, for closedend funds, information that would 

precede other disclosures in the same 

item, and then specifying that more 

detailed information be placed later in 

the prospectus. As an alternative, we 

considered placing all requirements in 

the statutory prospectus, e.g., Item 9 of 

Form N–1A, and not specifying the 

minimum information required in the 

summary section, including not 

requiring the use of the Strategy 

Overview Table. This alternative would 

leave the determination of what 

information should be included under 

the existing sections of the summary 

prospectus to the funds. However, we 

believe that such an approach could 

impede investors’ ability to compare 

different ESG funds, as fund managers 

would make different choices about the 

placement of disclosures. Some funds 

might include less information than we 

are proposing in the summary section of 

the prospectus, while others might 

include more detailed disclosures than 

we are proposing, which might 

overwhelm some investors seeking a 

short, comparable overview. 

4. More Granular Reporting for Advisers 

We are proposing to require advisers 

that consider ESG factors as part of their 

advisory business to provide enhanced 

ESG-related disclosures to current and 

prospective advisory clients in the 

adviser brochure, while also collecting 

information on advisers’ use of ESG 

factors in their advisory business in 

Form ADV Part 1A. For example, we 

propose to require an adviser to provide 

a narrative description of the ESG 

factors it considers for each significant 

investment strategy or method of 

analysis for which it considers any ESG 

factors, including whether it utilizes 

internal or external methodologies, 

inclusionary or exclusionary screens, or 

relies on an index, in the adviser 

brochure. 

As an alternative, we considered 

requiring more detailed information 

from advisers who consider ESG factors 

or pursue ESG-focused, or impact 

strategies. For example, we considered 

requiring these advisers to report 

aggregated ESG client holdings statistics 

and GHG metrics. However, unlike 

registered funds that generally pursue a 

single strategy across their portfolio, 

advisers may implement a variety of 

strategies for clients. Because ESG 

metrics under this option would be 

aggregated across various clients 

pursuing potentially disparate 

strategies, it would be difficult for 

advisers to provide detailed quantitative 

ESG reporting at the adviser level. The 

aggregation also would likely impede 

the utility of this type of information for 

both investors and the Commission 

because any aggregated ESG information 

reported by the adviser would reflect 

the combined holdings of all its clients, 

each of whom may have different 

investment objectives, time horizons, 

and approaches to ESG investing. 

Accordingly, we believe it is 

appropriate to propose the narrative 

disclosures in the adviser brochure 

while collecting more limited census 

data on advisers’ ESG practices in ADV 

Part 1A. This approach would provide 

investors with clear, consistent, and 

decision-useful information about 

adviser ESG practices while still 

providing the Commission with 

enhanced census information on ESG 

developments in this evolving area. 

5. GHG Metrics Reporting Requirements 

We considered alternatives for several 

aspects of the proposed GHG reporting 

requirements including the covered 

scope of funds, covered asset classes, 

and required metrics. 

(a) Covered Scope of Funds 

The proposal would require only 

environmentally focused funds to 

disclose GHG metrics, which are funds 

that consider environmental factors in 

response to Item C.3(j)(ii) on Form N– 

CEN, but do not affirmatively state that 

they do not consider issuers’ GHG 

emissions as part of their investment 

strategy in the ‘‘ESG Strategy Overview’’ 

table in the fund’s prospectus.449 As an 

alternative, we could require all funds 

that consider environmental factors in 

response to Item C.3(j)(ii) on Form N– 

CEN to disclose GHG metrics, including 


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450See section III.B.2. Also see Morningstar 

Comment letter. 

451Cf. supra footnote 426 and accompanying text. 

452We understand, however, that leading 

practices in the financial sector are more in line 

with our proposed approach that includes both 

equity and debt. See PCAF, The Global GHG 

Accounting & Reporting Standard for the Financial 

Industry, First Edition (Nov. 18, 2020). (for detailed 

discussion). 

453We recognize that it is conceptually difficult 

to attribute emissions to certain types of derivative 

securities or certain asset classes such as interest 

swaps, foreign currencies or cash management 

vehicles. These kinds of investments would not be 

included in the proposed definition of a ‘‘portfolio 

company.’’ 

those that affirmatively state that they 

do not consider issuers’ GHG emissions 

as part of their investment strategy in 

the fund’s prospectus. As another 

alternative, we could further require all 

ESG-Focused Funds to disclose GHG 

metrics. 

The benefits of these alternatives 

would likely be limited, while they 

would increase compliance costs across 

ESG-Focused Funds. Investors who 

most value GHG disclosures may 

already invest in ESG-Focused Funds 

that consider GHG emissions as part of 

their strategy. 

Accordingly, these alternatives would 

likely target investors who place a lower 

value on GHG disclosures. For example, 

some investors may only consider 

governance-related factors of portfolio 

companies within ESG-Focused Funds. 

Also, GHG metrics produced by funds 

pursuing non-climate related goals 

could potentially confuse investors, as 

investors may interpret GHG metrics as 

an indication that the fund considers 

climate-related factors. Therefore, we 

believe it is appropriate to narrow the 

scope of covered funds, as proposed, by 

excluding funds from GHG metrics 

reporting requirements if they 

affirmatively state that they do not 

consider portfolio company GHG 

emissions as part of their ESG strategy. 

This tailored approach would provide 

GHG metrics information to investors 

who seek it without increasing burdens 

on funds with a different focus. 

As another alternative, we could 

expand the proposed requirement to 

disclose GHG emissions information to 

Integration Funds by requiring 

disclosure of GHG metrics from all 

Integration Funds that indicate that they 

consider environmental factors on Form 

N–CEN unless they affirmatively state in 

their principal investment strategies that 

they do not consider GHG emissions as 

part of their integration process, or 

alternatively requiring such disclosures 

from Integration Funds that specifically 

consider the GHG emissions associated 

with the portfolio companies in which 

they invest. These alternatives could 

help investors who consider 

environmental factors with their 

investment decisions. Because these 

alternatives would make GHG metrics 

information more widely available 

across all funds that consider 

environmental factors to any degree, or 

across all funds that specifically 

consider GHG emissions, and help 

investors in these funds make 

comparisons across Integration Funds or 

between Integration Funds and ESGFocused Funds. However, investors in 

Integration Funds may assign less utility 

to GHG metrics disclosed by those funds 

than GHG metrics disclosed by ESGFocused or ESG-Impact funds since, by 

definition, environmental factors are but 

one of multiple factors these funds 

consider. Some investors may also 

misunderstand the GHG metrics 

disclosure as a signal that the 

Integration Fund considers climaterelated factors more significantly than 

other factors, which may lead investors 

to misdirect their investments, affecting 

capital allocations among Integration 

Funds and ESG-Focused Funds. 

Additionally, these alternatives would 

impose higher compliance costs on 

Integration Funds that consider 

environmental factors or specifically 

consider GHG emissions. Although it is 

difficult to precisely estimate the 

number and scope of Integration Funds, 

some commenters suggested that a 

substantial number of funds would be 

potentially considered Integration 

Funds as defined in this release.450

Therefore, the potential impacts of 

alternatives that apply to all Integration 

Funds may be significant, although 

alternatives that apply only to 

Integration Funds that specifically 

consider portfolio company GHG 

emissions would be more limited, as we 

believe there are a limited number of 

such funds based on funds’ current 

disclosures. In addition, many 

Integration Funds may not currently 

devote resources to calculate GHG 

metrics, let alone disclose them, as GHG 

emissions may only be one of many 

factors that Integration Funds consider 

in their investment selection process. As 

a result, Integration Funds would likely 

incur significantly higher costs to 

comply with GHG metrics requirements. 

Facing high compliance costs associated 

with GHG metrics, these options may 

incentivize a new fund or even an 

existing fund to operate without 

considering environmental factors or 

portfolio company GHG emissions 

specifically. These alternatives may 

inadvertently reduce the number of 

choices available for investors who seek 

to invest in environmental funds. 

The additional compliance costs of 

these alternatives, relative to the rule as 

proposed, would be reduced to the 

extent that more corporate issuers were 

to publicly disclose their emissions.451

(b) Covered Asset Classes 

We propose GHG metrics that include 

a wide range of asset classes. We 

understand that, in current practices, 

sometimes, portfolio carbon footprint 

metric uses the market capitalization of 

a company, which counts only equity, 

not debt, of a company, as a 

denominator.452 As an alternative, 

therefore, we could have included only 

equities as the denominator in 

calculating the portfolio carbon 

footprint metric. However, we believe it 

is important to take into account both 

equity and debt because both equity and 

debt finance the company’s operations, 

thus both contribute indirectly to its 

emissions. Otherwise, two companies 

with the same GHG emissions could 

result in different metric numbers 

depending on particular combinations 

of debt and equity (i.e., capital 

structures) that two companies use to 

finance their operations. This could be 

confusing to investors, moreover, it may 

affect capital allocations between equity 

and debt. In general, if certain asset 

classes are not covered in GHG metrics, 

it may incentivize some funds to invest 

more in one asset class over another, so 

that GHG metrics would look improved 

even though underlying exposures to 

climate risks remain the same, which 

could confuse investors. Therefore, 

climate risks would not be accurately 

reflected in asset prices, and may lead 

to inefficient capital allocations through 

distorted metrics. To mitigate these 

concerns, under the proposal a fund 

would be required to include in GHG 

metrics the emissions attributable to the 

fund’s investment in any ‘‘portfolio 

company.’’ A ‘‘portfolio company’’ 

would include an issuer engaged in or 

operating a business or activity that 

generates GHG emissions, as well as an 

investment in a registered or private 

fund.453 Under the proposal, a fund’s 

GHG emissions would include direct 

investments in portfolio companies as 

well as when a fund invests through a 

derivative. Under the proposal, we 

understand funds may incur some costs 

to assign value to the derivatives. As 

another alternative, we could exclude 

holdings in derivative securities from 

GHG metrics. This alternative would be 

less costly than the proposal. However, 

we believe potential cost savings from 

excluding derivatives in GHG metrics 

would not be substantial, because 

currently, holdings in derivative 


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454We analyzed data from form N–PORT to better 

understand asset holdings of funds with names 

containing ‘‘Sustainable,’’ ‘‘Responsible,’’ ‘‘ESG,’’ 

‘‘Climate,’’ ‘‘Carbon,’’ or ‘‘Green’’ as of Sept. 2021. 

According to this analysis, less than 1 percent of 

holdings are in derivative securities. Note that the 

data used in this analysis may undercount or overcount funds incorporating ESG factors in their 

investment strategies. For example, even though 

some mutual funds and EFTs incorporate ESG 

factors in their investment strategies, some mutual 

funds and ETFs may not have fund names 

containing these ESG-related terms. In this respect, 

this estimate may undercount the number of funds 

with ESG strategies. Additionally, some funds with 

names containing ESG terms may consider ESG 

factors along with many other factors in their 

investment decisions. In this respect, this estimate 

may then over-count the number of funds with ESG 

strategies. 

455The differences convey that the portfolio 

carbon footprint uses enterprise value, while the 

weighted average carbon intensity uses revenue 

instead. Both revenue and enterprise value of a 

public company are publicly available. 

456 Investors who want to have more control over 

portfolio companies may choose to directly invest 

in such companies. Additionally, direct 

investments allow investors to more easily 

implement their investment strategies according to 

their values/objectives. For example, investors may 

decide to divest from certain companies that are not 

aligned with their values. Investors may elect to 

indirectly invest in portfolio companies through 

investment vehicles like mutual funds or ETFs for 

several reasons. These indirect investment vehicles 

allow investors to diversify their investment risks, 

and thus achieve more stable returns. Similarly, 

these indirect investment vehicles allow some 

investors, especially small investors, to access 

certain types of assets that they cannot afford to buy 

otherwise. Investors who indirectly invest in 

portfolio companies through these vehicles, 

however, often do not have direct control over 

portfolio companies. 

457See supra sections III.B.5.a and III.B.5.b (for 

more detailed discussion regarding scope 3 

emissions). 

458See supra sections III.B.5.a and III.B.5.b. Scope 

3 emissions represent the largest portion of 

companies’ emissions, in some cases, up to 99 

percent of total emissions of the company. See 

supra footnote 395. 

securities are minuscule among ESG 

funds.454 Furthermore, this alternative 

may incentivize funds to try and 

circumvent disclosure by holding equity 

exposure as derivative positions, 

potentially affecting capital allocations 

and obfuscating their true underlying 

financing of GHG emissions. 

(c) Required Metrics 

In the proposal, we require two GHG 

metrics, portfolio carbon footprint and 

weighted average carbon intensity. 

Alternatively, we could permit funds to 

report a GHG metric of their choice. In 

this option, funds would have a 

flexibility to select a metric that they 

believe most suitable for their 

investment strategies or investment 

goals. This flexibility could facilitate the 

development of new metrics that better 

reflect the advancement in 

methodologies measuring emissions or 

better capture the changes in 

environmentally focused investment 

landscapes. On the other hand, in this 

option, GHG metrics disclosures would 

be less useful for investors as investors 

could not easily compare funds based 

on objective and comparable emission 

measures of portfolios. Another 

alternative would be requiring either of 

the carbon footprint or weighted average 

carbon intensity metrics, rather than 

requiring both. This would be a less 

costly option. However, it would be 

more difficult to satisfy varying needs 

and investment goals of investors with 

only one metric. Furthermore, the 

incremental cost associated with 

producing two metrics, instead of one 

metric, in the proposal would be 

minimal as the two proposed GHG 

metrics require almost identical data 

elements that are publicly available in 

most cases.455

(d) Scope 3 Emissions in Required 

Metrics 

In the proposal, an ESG-Focused 

Fund that considers environmental 

factors would be required to disclose the 

Scope 3 emissions of its portfolio 

companies, to the extent that Scope 3 

emissions data are reported by the 

fund’s portfolio companies. 

Alternatively, we could require funds to 

disclose Scope 3 emissions for all 

portfolio companies regardless of the 

reporting status of the company, as 

Scope 1 and 2 emissions of all portfolio 

companies would be disclosed. 

However, under this alternative, fund 

managers would be required to estimate 

Scope 3 emissions of non-reporting 

companies, which could be 

substantially costlier than the proposed 

rule. Moreover, the utility of fund 

managers’ aggregated estimates of Scope 

3 emissions would be somewhat limited 

at present, as estimated scope 3 

emissions tend to be less consistent and 

reliable due to the current limited data 

availability and opaque estimation 

methodologies discussed in section 

III.B.5. Thus, this alternative would 

likely generate less benefits to investors 

in making informed investment 

decisions. 

In calculating the required GHG 

metrics under the proposal, Scope 3 

emissions of the portfolio would be 

disclosed separately from Scope 1 and 

2 emissions. Further, Scope 3 emissions 

would be disclosed by sector. 

Alternatively we could include Scope 3 

emissions with Scope 1 and 2 emissions 

in calculating GHG metrics. However, 

this alternative approach could 

exacerbate potential double counting 

issues in measuring emissions at the 

portfolio level. To the extent that Scope 

1 and 2 emissions overlap among 

companies that the fund invests in, GHG 

metrics would overstate its financed 

emissions, thus, may confuse and 

misguide investors in their decisions. 

For instance, GHG metrics overstating 

emissions financed by the fund may 

inadvertently discourage certain 

investors from investing in the fund and 

instead encourage them to directly 

invest in portfolio companies.456 In 

addition, because Scope 3 emissions are 

less consistent and reliable, GHG 

metrics including Scope 3 would be less 

consistent and reliable than GHG 

metrics with Scope 1 and 2 emissions 

only. As a result, these metrics would be 

less useful for investors. With regards to 

costs, this alternative could be costlier 

than the proposal, because a larger 

number of companies do not disclose 

Scope 3 emissions, and it would be 

more difficult to estimate due to the 

complexity of measuring Scope 3 

emissions.457 Another alternative would 

be to exclude Scope 3 emissions from 

disclosure requirements altogether. 

However, Scope 3 emissions account for 

most of total carbon emissions in some 

companies.458 In this regard, this 

alternative would provide incomplete 

information about total carbon 

emissions financed by the fund, and 

thus may be less useful for investors. 

This is particularly important because 

portfolio companies with the same 

amount of total carbon emissions could 

have very different Scope 3 emissions 

depending on how companies arrange 

their business structures (e.g., reliance 

on supply chains). In this regard, if 

Scope 3 emissions are excluded 

altogether, investors may not fully 

appreciate nuanced details in GHG 

metrics of two companies that emit the 

same total amount of carbon yet have 

different business arrangements, and 

may inadvertently misdirect 

investments. With regards to costs, this 

alternative would not save significant 

costs compared to the proposal because 

the proposal would require funds to 

disclose Scope 3 emissions to the extent 

that portfolio companies disclose them. 

(e) Non-Reporting Companies 

The current proposal requires the 

inclusion of good faith estimates for 

GHG emissions, when portfolio 

companies do not publicly disclose 

GHG emissions either by regulatory 

filings or by public publications, in 

computing GHG metrics of portfolios. 

Alternatively, the proposal could 

require the exclusion of these estimates 

in the computation of GHG metrics. 

This alternative could be potentially 


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Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36723 

459See supra section III.B.5 (for more detailed 

discussion). 

460See supra section III.C.2. See also infra section 

IV.E. 

less costly than the proposal since the 

fund would not have to expend its 

resources to estimate emissions of nonreporting companies. However, because 

a substantial number of companies do 

not publicly disclose their emissions as 

discussed in section III.B.5, resulting 

GHG metrics would be less 

representative of actual emissions 

financed by the fund. As such, this 

could provide limited benefits to 

investors, and potentially misguide 

investors seeking to make informed 

decisions. Moreover, GHG metrics could 

be susceptible to manipulation because 

metrics could appear improved by 

shifting the composition (reporting 

status and emissions) of portfolio 

companies. Further, it may 

inadvertently disincentivize nonreporting companies from publicly 

disclosing GHG emissions. As another 

alternative, we could require 

environmentally focused funds to only 

invest a limited percentage in nonreporting companies. However, this 

alternative could limit investors’ 

investment options. This restriction 

could disproportionally affect small-cap 

companies or companies in certain 

sectors such as communication or 

technology sectors, as such companies 

are less likely to publicly disclose 

emissions.459 In addition, to the extent 

that the fund invests in non-reporting 

companies without any estimations of 

emissions associated with those nonreporting companies, resulting GHG 

metrics would be less representative of 

the emissions financed by the fund, and 

thus less informative to investors. 

Similar to the alternative discussed 

above, to the extent that the fund would 

not estimate emissions of non-reporting 

companies, this alternative could be less 

costly than the proposal. 

6. Modified Inline XBRL Requirements 

Under the proposed amendments, the 

new investor-facing disclosures filed by 

funds on Forms N–1A, N–2, N–8B–2, S– 

6, N–CSR, and 10–K would be tagged in 

Inline XBRL. Alternatively, we could 

have changed the scope of the proposed 

tagging requirement for the new 

investor-facing disclosures, such as by 

limiting this requirement to a subset of 

funds. 

For example, the tagging requirements 

could have excluded unit investment 

trusts, which are not currently required 

to tag any filings in Inline XBRL. Under 

such an alternative, unit investment 

trusts would submit the new disclosures 

in unstructured HTML or ASCII, and 

thereby avoid the initial Inline XBRL 

implementation costs (such as the cost 

of training in-house staff to prepare 

filings in Inline XBRL, and the cost to 

license Inline XBRL filing preparation 

software from vendors) and ongoing 

Inline XBRL compliance burdens that 

would result from the proposed tagging 

requirement.460 However, narrowing the 

scope of tagging requirements, whether 

based on fund structure, fund size, or 

other criteria, would diminish the 

extent of informational benefits that 

would accrue as a result of the proposed 

disclosure requirements by making the 

excluded funds’ disclosures 

comparatively costlier to process and 

analyze. As such, we are not proposing 

to exclude any funds or otherwise 

narrow the scope of Inline XBRL tagging 

requirements. 

E. General Request for Comment 

The Commission requests comment 

on all aspects of this economic analysis, 

including whether the analysis has: (1) 

identified all benefits and costs, 

including all effects on efficiency, 

competition, and capital formation; (2) 

given due consideration to each benefit 

and cost, including each effect on 

efficiency, competition, and capital 

formation; and (3) identified and 

considered reasonable alternatives to 

the proposed regulations. We request 

and encourage any interested person to 

submit comments regarding the 

proposed regulations, our analysis of the 

potential effects of the proposed 

regulations, and other matters that may 

have an effect on the proposed 

regulations. We request that 

commenters identify sources of data and 

information as well as provide data and 

information to assist us in analyzing the 

economic consequences of the proposed 

regulations. We also are interested in 

comments on the qualitative benefits 

and costs we have identified and any 

benefits and costs we may not have 

discussed. 

In addition to our general request for 

comment on the economic analysis 

associated with the proposed 

amendments, we request specific 

comment on certain aspects of the 

proposal: 

195. Have we correctly identified the 

benefits and costs of the proposed rule 

amendments? Are there additional 

benefits and costs that we should 

include in our analysis? 

196. We encourage commenters to 

identify, discuss, analyze, and supply 

relevant data, information, or statistics 

related to the benefits and costs 

associated the proposed rule 

amendments. We also encourage 

commenters to supply relevant data, 

information, or statistics related to 

Integration, ESG-Focused, and Impact 

Funds as defined in this release. In 

particular, we solicit any additional 

data, information or statistics in 

connection with our estimated number 

of funds with ESG-focused strategies as 

discussed in section III.B of this release. 

197. Are there costs to, or effects on, 

parties other than those we have 

identified? What are the costs and/or 

effects? 

198. How costly would the proposed 

GHG metrics disclosure requirements be 

for environmentally focused funds that 

consider GHG emissions in their 

investment strategies? 

IV. Paperwork Reduction Act Analysis 

A. Introduction 

Our proposed rule amendments 

would have an impact on the current 

collections of information burdens 

under the Paperwork Reduction Act of 

1995 (‘‘PRA’’) of the following Forms 

and Rules: Form 10–K, Form ADV, 

Form N–1A, Form N–2, Form N–8B–2, 

Form S–6, Form N–CSR, Form N–CEN, 

Investment Company Interactive Data, 

and 17 CFR 270.30e-1 (‘‘rule 30e-1’’). 

The titles for the existing collections of 

information that we are amending are: 

(i) ‘‘Exchange Act Form 10–K’’ (OMB 

Control No. 3235–0063); (ii) ‘‘Form 

ADV’’ (OMB Control No. 3235–0049); 

(iii) ‘‘Form N–1A, Registration 

Statement under the Securities Act and 

under the Investment Company Act for 

Open-End Management Investment 

Companies’’ (OMB Control No. 3235– 

0307); (iv) ‘‘Form N–2 under the 

Investment Company Act of 1940 and 

Securities Act of 1933’’ (OMB Control 

No. 3235–0026); (v) ‘‘Form N–8B–2, 

Registration Statement of Unit 

Investment Trusts Which Are Currently 

Issuing Securities’’ (OMB Control No. 

3235–0186); (vi) ‘‘Form S–6 [17 CFR 

239.19], for registration under the 

Securities Act of 1933 of Unit 

Investment Trusts registered on Form 

N–8B–2’’ (OMB Control No. 3235– 

0184); ; (vii) ‘‘Form N–CSR, Certified 

Shareholder Report under the Exchange 

Act and under the Investment Company 

Act for Registered Management 

Investment Companies’’ (OMB Control 

No. 3235–0570); (viii) ‘‘Form N–CEN’’ 

(OMB Control No. 3235–0730); (ix) 

‘‘Investment Company Interactive Data’’ 

(OMB Control No. 3235–062); and (x) 

‘‘Rule 30e-1 under the Investment 

Company Act, Reports to Stockholders 

of Management Companies’’ (OMB 


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461The paperwork burdens associated with 17 

CFR 275.203–1, 275.204–1, and 204–4 (‘‘rules 203– 

1, 204–1, and 204–4’’) are included in the approved 

annual burden associated with Form ADV and thus 

do not entail separate collections of information. 

Rule 203–1 under the Advisers Act requires every 

person applying for investment adviser registration 

with the Commission to file Form ADV. Rule 204– 

4 under the Advisers Act requires certain 

investment advisers exempt from registration with 

the Commission (‘‘exempt reporting advisers’’) to 

file reports with the Commission by completing a 

limited number of items on Form ADV. Rule 204– 

1 under the Advisers Act requires each registered 

and exempt reporting adviser to file amendments to 

Form ADV at least annually, and requires advisers 

to submit electronic filings through IARD. 

462This estimate is based on the last time the 

rule’s information collection was submitted for PRA 

renewal in 2021. See Information Collection 

Request (‘‘ICR’’) Reference No. 202106–3235–001, 

available at https://www.reginfo.gov/public/do/ 

PRAViewICR?ref_nbr=202106-3235-001. 

Control No. 3235–0025).461 The 

Commission is submitting these 

collections of information to OMB for 

review and approval in accordance with 

44 U.S.C. 3507(d) and 5 CFR 1320.11. 

An agency may not conduct or sponsor, 

and a person is not required to respond 

to, a collection of information unless it 

displays a currently valid OMB control 

number. 

We discuss below the proposed 

revised existing collection of 

information burdens associated with the 

amendments to Form 10–K, Form ADV, 

Form N–1A, Form N–2, Form N–8B–2, 

Form N–CSR, Form N–CEN, Form S–6, 

Investment Company Interactive Data, 

and rule 30e-1. Responses to the 

disclosure requirements of the 

amendments to Form 10–K, Form ADV, 

Form N–1A, Form N–2, Form N–8B–2, 

Form N–CSR, Form N–CEN, Form S–6, 

and rule 30e-1, which are filed with the 

Commission, are not kept confidential. 

A description of the proposed 

amendments, including the need for the 

information and its use, as well as a 

description of the likely respondents, 

can be found in Section II above, and a 

discussion of the expected economic 

effects of the final amendments can be 

found in Section III above. 

B. Form N–1A 

Form N–1A is used by registered 

management investment companies 

(except insurance company separate 

accounts and small business investment 

companies licensed under the United 

States Small Business Administration), 

to register under the Investment 

Company Act and to offer their shares 

under the Securities Act. In our most 

recent Paperwork Reduction Act 

submission for Form N–1A, we 

estimated for Form N–1A a total annual 

aggregate ongoing hour burden of 

1,672,077 hours, and the total annual 

aggregate external cost burden is 

$132,940,008.462 Compliance with the 

disclosure requirements of Form N–1A 

is mandatory, and the responses to the 

disclosure requirements will not be kept 

confidential. 

The table below summarizes our PRA 

initial and ongoing annual burden 

estimates associated with the proposed 

amendments to Form N–1A. 

BILLING CODE 8011–01–P 


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463This estimate is based on the last time the 

rule’s information collection was submitted for PRA 

renewal in 2021. See ICR Reference No. 202107– 

3235–015, available at https://www.reginfo.gov/ 

public/do/PRAViewICR?ref_nbr=202107-3235-015. 

C. Form N–2 

Form N–2 is used by closed-end 

management investment companies 

(except small business investment 

companies licensed as such by the 

United States Small Business 

Administration) to register under the 

Investment Company Act and to offer 

their shares under the Securities Act. In 

our most recent Paperwork Reduction 

Act submission for Form N–2, we 

estimated for Form N–2 a total hour 

burden of 94,627 hours, and the total 

annual external cost burden is 

$6,260,392.463 Compliance with the 

disclosure requirements of Form N–2 is 

mandatory, and the responses to the 


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Proposed fund prospectus 

Total new annual burden 

per fund 

Number offunds 

Total new annual burden 

Proposed fund prospectus 

Total new annual burden 

per fund 

Number offunds 

Total new annual burden 

Current burden estimates 

Revised burden estimates 

Notes: 

Initial 

internal 

burden 

hours 

3 hours 

18 hours 

TABLE 2: FORM N-1A PRA ESTIMATES 

Internal annual 

burden hours1 wage rate2 

PROPOSED AMENDMENTS TO FORM N-lA 

1" Z • ~d • ~ diS 1 °"<"i ~"-'• ;; 

$356 

2 hours3 (blended rate for 

compliance attorney and 

senior programmer) 4 

2 hours 

x 10,598 funds6 

21,196 hours 

$356 

12 hours' (blended rate for 

compliance attorney and 

senior programmer) 4 

12 hours 

x 755 funds9 

9,060 hours 

30,256 hours 

TOTAL ESTIMATED BURDENS, INCLUDING AMENDMENTS 

+1,672,077 hours 

1,702,333 hours 

1. Includes initial burden estimates annualized over a 3-year period. 

Internal time 

costs 

$712 

$712 

X 10,598 

funds" 

$7,545 776 

$4,272 

$4,272 

x 755 funds 9 

$3,225360 

Annual external 

cost burden 

$617.505 

$617.50 

x 10,598 funds6 

$6,544,265 

$4,8728 

$4,872 

x 755 funds9 

$3,678,360 

$10,222.625 

+$132,940,008 

$143,162,633 

2. These PRA estimates assume that the same types of professionals would be involved in satisfying the proposed requirements that we believe otherwise 

would be involved in complying with this requirement. The Commission's estimates of the relevant wage rates are based on salary information for the 

securities industry compiled by the Securities Industry and Financial Markets Association's Office Salaries in the Securities Industry 2013. The estimated 

figures are modified by firm size, employee benefits, overhead, and adjusted to account for the effects of inflation. See Securities Industry and Financial 

Markets Association, Report on Management & Professional Earnings in the Securities Industry 2013 (as adjusted to account for inflation, the "SIFMA Wage 

Report"). 

3. Includes initial burden estimates annualized over a three-year period. plus 1 hour of ongoing annual burden hours. The estimate of 2 hours is based on the 

following calculation: ((3 initial hours /3) + 1 hour of additional ongoing burden hours) = 2 hours. 

4. The $356 wage rate reflects current estimates of the blended hourly rate for an in-house compliance attorney ($373) and a senior programmer ($339). 

$356 is based on the following calculation· ($373+$339)/ 2 = $356. 

5. $617 .5 includes an estimated $248 for 0.5 hours of outside legal services and an estimated $369.50 for 0.5 hours of management consultant services. 

6. For PRA purposes, we estimate that 80% of all funds filing on Form N-1A as of 2021 will incur the burdens associated with the proposed Integration Fund 

disclosure. We believe this estimate is appropriate because a majority offunds may be required to incur some burdens to determine whether the proposed 

disclosure requirements would apply to their investment strategies. Furthermore. we have observed that an increasing number of investment advisers have 

pledged to consider ESG factors to some extent across all their investment products. However, the actual number of funds that meet the definition of 

Integration Fund may be lower or higher. 

7. Includes initial burden estimates annualized over a three-year period. plus 6 hours of ongoing annual burden hours. The estimate of 12 hours is based on 

the following calculation: ((18 initial hours /3) + 6 hours of additional ongoing burden hours)= 12 hours. 

8. $4,872 includes an estimated $1,956 for 4 hours of outside legal services and an estimated $2,916 for 4 hours of management consultant services. 

9. The estimated 755 funds includes the staff's estimate of 700 ESG-Focused Funds and 55 ESG Impact Funds registered on Form N-1A as of 2021. 
36726 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

464See 17 CFR 274.12. 

disclosure requirements will not be kept 

confidential. 

The table below summarizes our PRA 

initial and ongoing annual burden 

estimates associated with the proposed 

amendments to Form N–2. 

D. Forms N–8B–2 and S–6 

Form N–8B–2 is used by UITs to 

initially register under the Investment 

Company Act pursuant to section 8 

thereof.464 UITs are required to file 

Form S–6 to register offerings of 

securities with the Commission under 


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TABLE 3: FORM N-2 PRA ESTIMATES 

Initial hours Annual hours1 Wage rate2 

$356(blended rate for 

Proposed fund prospectus 3 hours 2 hours 3 compliance attorney and 

senior programmer)4 

Total new annual burden 2 hours 

per fund 

Number of funds x 598 funds6 

Total new annual burden 1,196 hours 

$356 

Proposed fund prospectus 18 hours 12 hours7 (blended rate for 

compliance attorney and 

senior programmer)4 

Total new annual burden 

12 hours 

per fund 

Number of funds x 14 funds9 

Total new annual burden 168 

hours 

1,364 hours 

TOTAL ESTIMATED BURDENS. INCLUDING AMENDMENTS 

Current burden estimates +94,627 hours 

Revised burden estimates 95,991 hours 

Notes: 

1. Includes initial burden estimates annualized over a 3-year period. 

Internal time 

costs 

$712 

$712 

x 598 funds6 

$425,776 

$4,272 

$4,272 

x 14 funds9 

$59,808 

Annual external 

cost burden 

$617.505 

$617.50 

x 598 funds6 

$369,265 

$4,8728 

$4,872 

x 14 funds9 

$68,208 

$437,473 

+$6,260,392 

6,697,865 

2. These PRA estimates assume that the same types of professionals would be involved in satisfying the proposed reporting 

requirements that we believe otherwise would be involved in complying with this requirement. The Commission's estimates of the 

relevant wage rates are based on the SIFMA Wage Report. 

3. Includes initial burden estimates annualized over a three-year period, plus 1 hour of ongoing annual burden hours. The estimate of 2 

hours is based on the following calculation: ((3initial hours/3) + 1 hour of additional ongoing burden hours)= 2 hours. 

4. The $356 wage rate reflects current estimates of the blended hourly rate for an in-house compliance attorney ($373) and a senior 

programmer ($339). $356 is based on the following calculation: ($373+$339)/ 2 = $356. 

5. $617.5 includes an estimated $248 for 0.5 hours of outside legal services and an estimated $369.50 for 0.5 hours of management 

consultant services. 

6. For PRA purposes, we estimate that 80% of all funds, including BDCs, filing on Form N-2 as of 2021 will incur the burdens associated 

with the proposed Integration Fund disclosure. We believe this estimate is appropriate because a majority of funds may be required to 

incur some burdens to determine whether the proposed disclosure requirements would apply to their investment strategies. 

Furthermore, we have observed that an increasing number of investment advisers have pledged to consider ESG factors to some extent 

across all their investment products. However, the actual number of funds that meet the definition of an Integration Fund may be lower 

or higher. 

7. Includes initial burden estimates annualized over a three-year period, plus 6 hours of ongoing annual burden hours. The estimate of 

12 hours is based on the following calculation: ((18 initial hours /3) + 6 hours of additional ongoing burden hours)= 12 hours. 

8. $4,872 includes an estimated $1,956 for 4 hours of outside legal services and an estimated $2,916 for 4 hours of management 

consultant services. 

9. The estimated 14 funds includes the staff's estimated 11 ESG Focused Funds and 3 ESG Impact Funds registered on Form N-2 as of 

2021. 
Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36727 

465See 17 CFR 239.16. 

466These estimates are based on the last time the 

rules’ information collections were each submitted 

for PRA renewal in 2020. See ICR Reference No. 

202006–3235–011, available at https://

www.reginfo.gov/public/do/PRAViewICR?ref_

nbr=202006-3235-011; ICR Reference No. 202004– 

3235–003, available at https://www.reginfo.gov/ 

public/do/PRAViewICR?ref_nbr=202004-3235-003. 

the Securities Act.465 As a result, UITs 

file Form N–8B–2 only once when the 

UIT is initially created and then use 

Form S–6 to file all post-effective 

amendments to their registration 

statements to update their prospectuses. 

In our most recent Paperwork Reduction 

Act submission for Form N–8B–2, we 

estimated for Form N–8B–2 a total hour 

burden of 28 hours, and a total annual 

external cost burden of $10,300, and for 

Form S–6 a total hour burden of 107,359 

hours, and a total annual external cost 

burden of $68,108,956.466 Compliance 

with the disclosure requirements of 

Forms N–8B–2 and S–6 is mandatory, 

and the responses to the disclosure 

requirements will not be kept 

confidential. 

The tables below summarize our PRA 

initial and ongoing annual burden 

estimates associated with the proposed 

amendments to Forms N–8B–2 and S– 

6. 


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Additional information 

concerning the securities 

underlying the trust's 

securities 

Total new annual burden 

per UIT 

Number of filings 

Total new annual burden 

Current burden 

estimates 

Revised burden 

estimates 

Notes: 

TABLE 4: FORM N-8B-2 PRA ESTIMATES 

Initial hours Annual hours1 Wage rate2 

BURDEN ESTIMATES FOR FORM N-SB -2 FILINGS 

2.0 hours 0.67 hours3 

0.67 hours 

x 1 filing5 

0.67 hours 

$306 

(blended rate for 

compliance attorney and 

intermediate portfolio 

manager) 

TOTAL ESTIMATED BURDENS, INCLUDING AMENDMENTS 

28 hours6 

29 hours6 

1. Includes initial burden estimates annualized over a 3-year period. 

Internal time costs 

$254 

$254 

x 1 filing5 

$254 

Annual external 

cost burden 

$617.504 

$617.50 

x 1 filing5 

$617.50 

$10,300 

$10,917.50 

2. These PRA estimates assume that the same types of professionals would be involved in satisfying the proposed reporting requirements that we 

believe otherwise would be involved in complying with this requirement. The Commission's estimates of the relevant wage rates are based on the SIFMA 

Wage Report. 

3. Represents initial burden estimates annualized over a three-year period. 

4. $617.50 includes an estimated $248 for 0.5 hours of outside legal services and an estimated $369.50 for 0.5 hours of management consultant 

services. 

5. We are assuming one portfolio per filing. In addition, we may be overestimating the number of filings as the trust may not consider ESG factors when it 

selects portfolio securities. 

6. Rounded to the nearest whole number. 
36728 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

467See Inline XBRL Adopting Release (requiring 

Form N–1A prospectus risk/return summary 

information to be submitted in Inline XBRL); 

Variable Contract Summary Prospectus Adopting 

Release (requiring variable contracts to submit 

specified Form N–3, N–4, and N–6 prospectus 

information in Inline XBRL); Closed-End Fund 

Offering Reform Adopting Release (requiring 

registered closed-end funds and BDCs to submit 

Form N–2 cover page information, specified Form 

N–2 prospectus information, and financial 

statement information (for BDCs only) in Inline 

XBRL); and Filing Fee Adopting Release (requiring 

registered closed-end funds (that are not interval 

funds) and BDCs to submit filing fee exhibits filed 

on Forms N–2 and N–14 in Inline XBRL), supra 

footnotes 185–186. 

468The Investment Company Interactive Data 

collection of information do not impose any 

separate burden aside from that described in our 

discussion of the burden estimates for this 

collection of information. 

469This estimate is based on the last time this 

information collection was approved in 2020. See 

ICR Reference No. 202008–3235–007, available at 

https://www.reginfo.gov/public/do/PRAViewICR?

ref_nbr=202008-3235-007. 

E. Proposed Inline XBRL Data Tagging 

Requirements 

The Investment Company Interactive 

Data collection of information 

references current requirements for 

certain registered investment companies 

and BDCs to submit to the Commission 

in Inline XBRL certain information 

provided in response to specified form 

and rule requirements included in their 

registration statements and posteffective amendments thereto; 

prospectuses filed pursuant to 17 CFR 

230.424(b) (‘‘rule 424(b)’’) and rule 

497(c) or (e) under the Securities Act; 

Exchange Act reports that are 

incorporated by reference into a 

registration statement; BDC financial 

statements; and, for registered closedend funds (that are not interval funds) 

and BDCs, their filing fee exhibits.467

We are proposing to amend Forms N– 

1A, N–2, N–8B–2, S–6, and N–CSR; and 

rules 11 and 405 of Regulation S–T to 

require that the ESG-related disclosures 

that certain funds would be providing in 

their prospectuses and/or annual reports 

under our proposed amendments be 

submitted to the Commission in Inline 

XBRL.468 While funds filing registration 

statements on Forms N–1A and N–2 

already submit certain information 

using Inline XBRL, for funds filing 

registration statements on Forms N–8B– 

2 and S–6 and for funds that file their 

annual reports on Form N–CSR, our 

proposed data tagging requirements 

would represent wholly new burdens. 

In our most recent Paperwork 

Reduction Act submission for 

Investment Company Interactive Data, 

we estimated a total aggregate annual 

hour burden of 252,602 hours, and a 

total aggregate annual external cost 

burden of $15,350,750.469 Compliance 

with the interactive data requirements is 

mandatory, and the responses will not 

be kept confidential. 

The table below summarizes our PRA 

initial and ongoing annual burden 

estimates associated with the proposed 

amendments to Form N–1A, Form N–2, 

Form N–8B–2, Form S–6, and Form N– 

CSR. 


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Additional information 

concerning the securities 

underlying the trust's 

securities 

Total new annual burden 

per UIT 

Number of UIT ETFs 

Total new annual burden 

Current burden 

estimates 

Revised burden 

estimates 

Notes: 

TABLE 5: FORM S-6 PRA ESTIMATES 

Initial hours Annual hours1 Wage rate2 

PROPOSED AMENDMENTS TO FORM S-6 

$306 

(blended rate for 

2.0 hours 0.83 hours3 compliance attorney and 

intermediate portfolio 

manager) 

0.83 hours 

x 8 filings5 

9.36 hours 

TOTAL ESTIMATED BURDENS. INCLUDING AMENDMENTS 

107.359 hours6 

107,368 hours6 

1. Includes initial burden estimates annualized over a 3-year period. 

Internal time 

costs 

$254 

$254 

x 8 filings5 

$2,032 

Annual external 

cost burden 

$617.504 

$617.50 

x 8 filings5 

$4,940 

+$4,940 

$68,113,896 

2. The Commission's estimates of the relevant wage rates are based on salary information for the securities industry compiled by the Securities Industry 

and Financial Markets Association's Office Salaries in the Securities Industry 2013. The estimated figures are modified by firm size. employee benefits, 

overhead, and adjusted to account for the effects of inflation. See Securities Industry and Financial Markets Association, Report on Management & 

Professional Earnings in the Securities Industry 2013. as modified by Commission staff for 2020. 

3. Includes initial burden estimates annualized over a three-year period. plus 0.5 hours of ongoing annual burden hours. The estimate of 1.17 hours is 

based on the following calculation: ((2.0 initial hours /3) + 0.5 hours of additional ongoing burden hours)= 1.17 hours. 

4. $617.50 includes an estimated $248 for 0.5 hours of outside legal services and an estimated $369.50 for 0.5 hours of management consultant 

services. 

5. For PRA purposes, we are assuming one portfolio per filing. In addition. we may be overestimating the number of filings as the trust may not consider 

ESG factors when it selects portfolio securities. 

6. Rounded to the nearest whole number. 
Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36729 

470See supra, Section II.A.3. 

471This estimate is based on the last time the 

rule’s information collection was submitted for PRA 

renewal in 2020. See ICR Reference No. 202007– 

Continued 

F. Proposed New Annual Reporting 

Requirements Under Rule 30e–1 and 

Exchange Act Periodic Reporting 

Requirements for BDCs 

As discussed above, we are proposing 

new disclosure requirements in the 

MDFP and MD&A sections of annual 

reports for registered management 

investment companies and BDCs, 

respectively.470 The collection of 

information burdens for these 

amendments correspond to information 

collections under rule 30e-1 for 

registered management investment 

companies and Form 10–K for BDCs. 

We discuss our proposed changes to 

each of these information collections 

below. 

We have previously estimated that it 

takes a total of 1,039,868 hours, and 

involves a total external cost burden of 

$149,244,791, to comply with the 

collection of information associated 

with rule 30e–1.471 Compliance with the 


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ESG-related disclosure for 

current XBRL filers3 

Number of funds 

ESG-related disclosure for 

new XBRL filers 7 

Number of filings 

Total new 

aggregate annual burden 

Current aggregate annual 

burden estimates 

Revised aggregate annual 

burden estimates 

Notes: 

TABLE 6: INVESTMENT COMPANY INTERACTIVE DATA 

Internal 

initial 

burden 

hours 

Internal annual 

burden hours1 Wage rate2 

PRl'Pl"SED IIHERi'\l'TI\ E Di'\Ti'\ ESTl~li'\TES 

$356 

2.4 hours 1 hour4 (blended rate for 

compliance attorney and 

senior programmer) 

X 11,920 

funds 6 

$356 

12 hours 5 hours8 (blended rate for 

compliance attorney and 

senior programmer) 

x 9 filings10 

11,965 

hours11 

Internal time 

costs 

$356 

X 11,920 

funds 

$1,780 

x 9 filings 

$4,259,54012 

Tl"Ti'\L ESTl~li'\TED BURDEIJS llk'LUDIIJG i'\~IEIJD~IEIHS 

+ 252,602 

hours 

264,567 hours 

1. Includes initial burden estimates annualized over a 3-year period. 

Annual external 

cost burden 

$505 

x 11,920 funds 

$10009 

x 9 filings 

$605,00013 

+ $15,350,750 

$15,955,750 

2. These PRA estimates assume that the same types of professionals would be involved in satisfying the proposed reporting requirements 

that we believe otherwise would be involved in complying with this requirement. The Commission's estimates of the relevant wage rates 

are based on the SIFMA Wage Report.3. This estimate represents the average burden for a filer on Form N-1A or Form N-2 that is currently 

subject to interactive data requirements. 

4. Includes initial burden estimates annualized over a three-year period, plus 0.20 hour of ongoing annual burden hours. The estimate of 1 

hour is based on the following calculation: ((2.4 initial hour /3) + 0.20 hour of additional ongoing burden hours)= 1 hour. 

5. We estimate an incremental external cost for filers on Form N-1A and Form N-2 as they already submit certain information using lnline 

XBRL. 

6. The number of funds represents the aggregate number of filings on Forms N-1A and N-2 as of 2021 that staff estimates would be 

subject to the ESG-related disclosure data tagging requirements. 

7. This estimate represents the average burden for a filer on Form N-8B-2 and Form S-6 that is not currently subject to interactive data 

requirements. 

8. Includes initial burden estimates annualized over a three-year period, plus 1 hour of ongoing annual burden hours. The estimate of 5 

hours is based on the following calculation: ((12 initial hours /3) + 1 hour of additional ongoing burden hours)= 5 hours. 

9. We estimate an external cost for filers on Form N-8B-2 and Form S-6 of $1,000 to reflect one-time compliance and initial set-up costs. 

Because these filers have not been previously been subject to lnline XBRL requirements, we estimate that these funds would experience 

additional burdens related to one time-costs associated with becoming familiar with lnline XBRL reporting. These costs would include, for 

example, the acquisition of new software or the services of consultants, or the training of staff. 

10. We believe that using the number of filings instead of the number of registrants on Form N-8B-2 and Form S-6 would form a more 

accurate estimate of annual burdens. This estimate is therefore based on the average number of filings made on Form N-8B-2 and Form S6 from 2020 to 2021. Based on a staff review of filings, we estimate that there would 9 filings that would be subject to the ESG-related 

disclosure data tagging requirements. 

11. 11,965 hours= (11,920 funds x 1 hour)+ (9 filings x 5 hours). 

12. $4,259,540 internal time cost= (11,920 funds x $356) + (9 filings x $1,780). 

13. $605,000 annual external cost= (11,920 funds x $50) + (9 filings x $1,000). 
36730 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

3235–015, available at https://www.reginfo.gov/ 

public/do/PRAViewICR?ref_nbr=202007-3235-015. 

disclosure requirements of rule 30e–1 is mandatory. Responses to the disclosure 

requirements are not kept confidential. 

The table below summarizes our PRA 

initial and ongoing annual burden 

estimates associated with the proposed 

amendments to rule 30e–1. 


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Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36731 


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Summary of ESG Impact 

achievement during 

reporting period 

Total additional burden per 

fund 

Number of funds 

Annual burden 

Disclosure of percentage 

of ESG voting matters and 

ESG engagement during 

reporting period 

Total additional burden per 

fund 

Number of funds 

Annual burden 

Disclosure of portfolio level 

GHG emissions metrics for 

the reporting period 

Total additional burden per 

fund 

Number of funds 

Annual burden 

Current burden estimates 

Revised burden estimates 

Notes: 

Internal initial 

burden hours 

9 hours 

9 hours 

24 hours 

TABLE 7: RULE 30E-1 PRA ESTIMATES 

Internal annual 

burden hours1 

6 hours3 

6 hours 

x 58 funds6 

348 hours 

6 hours3 

6 hours 

x 769 funds 7 

4,614 hours 

16 hours9 

16 hours 

x 355 funds11 

5,680 hours 

10,642 hours 

Wage rate2 

$345 

(blended rate for 

X 

compliance attorney, 

senior portfolio 

manager, and senior 

programmer)4 

$345 

(blended rate for 

compliance attorney, 

senior portfolio 

manager, and senior 

programmer)4 

$307 (blended rate for 

a senior accountant, 

compliance attorney, 

and senior 

programmer)8 

TOTAL ESTIMATED BURDENS INCLUDING AMENDMENTS 

+1,039,868 

hours 

1,050,510 

hours 

1. Includes initial burden estimates annualized over a 3-year period. 

Internal time 

costs 

$2,070 

x 58 funds 

$120,060 

$2,070 

x 769 funds 

$1,591,830 

$4,912 

x 355 funds 

$1,743,760 

Annual external 

cost burden 

$3,6545 

$3,654 

x 58 funds 

$211,932 

$3,6545 

$3,654 

x 769 funds 

$2,809,926 

$4,87210 

$4,872 

x 355 funds 

$1,729,560 

$4,751,418 

+$149,244, 791 

$153,996,209 

2. These PRA estimates assume that the same types of professionals would be involved in satisfying the proposed reporting requirements that we believe otherwise would be involved 

in complying with this requirement The Commission's estimates of the relevant wage rates are based on the SIFMA Wage Report. 

3. This estimate assumes that after the initial 9 hours that a fund would spend preparingthe proposed disclosure, which we annualize over a 3-year period, the fund would incur 3 

additional burden hours associated with ongoing preparation of the proposed disclosure per year. The estimate of 6 hours is based on the following calculation: ((9 initial hours/3) + 3 

hours of additional ongoing burden hours) = 6 hours. 

4. The $345 wage rate reflects current estimates of the blended hourly rate for an in-house compliance attorney ($368), a senior portfolio manager ($332). and a senior programmer 

($334). $345 is based on the following calculation: ($368+$332+$334) / 3 = $345. 

5. $3,654 includes an estimated $1,467 for 3 hours of outside legal services and an estimated $2,187 for 3 hours of management consultant services. 

6. Based on the staff's estimate of the number of funds registered on Form N-1A and Form N-2 with the term "impact" included in the fund name. 

7. The estimated 769 funds includes the staff·s estimate of 711 ESG-Focused Funds and 58 ESG Impact Funds registered on Form N-1A and Form N-2. 

8. The $307 wage rate reflects current estimates of the blended hourly rate for an in-house senior accountant ($218). compliance attorney ($368). and a senior programmer ($334). 

$307 is based on the followirg calculation: ($368+$218+$334) / 3 = $307. 

9. This estimate assumes that after the initial 24 hours that a fund would spend preparing the proposed disclosure, which we annualize over a 3-year period, the fund would incur 8 

additional burden hours associated with ongoing preparation of the proposed disclosure per year. The estimate of 6 hours is based on the following calculation: ((24 initial hours/3) + 

8 hours of additional ongoing burden hours) = 6 hours. 

10. $4,872 includes an estimated $1,956for 4 hours of outside legal services and an estimated $2,916 for 4 hours of management consultant services. 

11. Based on the staff's estimate of the number of funds registered on Form N-1A and Form N-2 with climate-related terms included in the fund name or principal investment 

strategies. 
36732 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

472This estimate is based on the last time the 

rule’s information collection was submitted in 

2021. See ICR Reference No. 202101–3235–003, 

available at https://www.reginfo.gov/public/do/ 

PRAViewICR?ref_nbr=202101-3235-003. 

473This estimate is based on the last time the 

rule’s information collection was submitted for PRA 

renewal in 2021. See ICR Reference No. 202012– 

3235–017, available at https://www.reginfo.gov/ 

public/do/PRAViewICR?ref_nbr=202012-3235-017. 

We have previously estimated that it 

takes a total of 14,188,040 hours, and 

involves a total external cost burden of 

$1,893,793,119, to comply with the 

collection of information associated 

with Form 10–K.472 Compliance with 

the disclosure requirements of Form 10– 

K is mandatory. Responses to the 

disclosure requirements are not kept 

confidential. 

We believe that the incremental 

increase in information collections 

burdens associated with the proposed 

annual report requirements for rule 30e– 

1 discussed above will be the same for 

Form 10–K. Therefore, the table below 

summarizes the estimated incremental 

burden increase associated with the 

proposed annual report amendments 

that ESG-Focused BDCs would be 

required to disclose Form 10–K. 

G. Form N–CEN 

Form N–CEN is an annual report filed 

with the Commission by all registered 

investment companies, other than faceamount certificate companies. We have 

previously estimated that it takes a total 

of 54,890 hours, and involves a total 

external cost burden of $1,344,980, to 

comply with the collection of 

information associated with Form N– 

CEN.473 Compliance with the disclosure 

requirements of Form N–CEN is 

mandatory. Responses to the disclosure 

requirements are not kept confidential. 

The table below summarizes our PRA 

initial and ongoing annual burden 

estimates associated with the proposed 

amendments to Form N–CEN. Staff 

estimates there will be no external costs 

associated with this collection of 

information. 


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Requirements to 

disclose 111mmary of 

ESG Impact, 

pen:entqe of ESG 

'«11:lnl lllllttllra and 

ESG anaqament, Imel 

portrallo kiwi GHG 

emllllons metrics for 

F 28 

TABLE 8: FORM 10-K PRA ESTIMATES 

28 $9,052 $9,052 $12,180 $12,180 

. __ thtuaporllnl~rlod _______________________________________________ _ 

Current estimated 

burdens for Form 10-K 

Revised Estimated 

burdens for Form 10-K 

Notes: 

14,188,040 

hours 

14,188,068 

hours 

1. Based on the staff's estimate of the number of business development companies with ESG-related terms included in the fund name or principal 

investment strategies. 

$1,893,793,119 

$1,893,805,299 
Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36733 

474This estimate is based on the last time the 

rule’s information collection was submitted for PRA 

renewal in 2020. See ICR Reference No. 202005– 3235–023, available at https://www.reginfo.gov/ 

public/do/PRAViewICR?ref_nbr=202005-3235-023. 

H. Form N–CSR 

Registered management investment 

companies are required to file reports 

with the Commission on Form N–CSR. 

In our most recent Paperwork Reduction 

Act submission for Form N–CSR, we 

estimated the annual compliance 

burden to comply with the collection of 

information requirement of Form N– 

CSR is 181,167.5 burden hours and an 

external cost burden estimate of 

$5,199,584.474 Compliance with the 

disclosure requirements of Form N–CSR 

is mandatory, and the responses to the 

disclosure requirements will not be kept 

confidential. 

The table below summarizes our PRA 

initial and ongoing annual burden 

estimates associated with the proposed 

amendments to Form N–CSR. 


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Reporting ESG-related fund 

census information 

Total new annual burden per 

fund 

Number offunds 

Total new annual burden 

Reporting Index-related 

fund census information 

Total new annual burden per 

fund 

Number offunds 

Total new annual burden 

Current burden estimates 

Revised burden estimates 

Notes: 

Internal 

initial 

burden 

hours 

1 hour 

0.5 hours 

TABLE 8: FORM N-CEN PRA ESTIMATES 

Internal 

annual 

burden hours 

1 hour? 

1 hour 

X 14,201 

funds 4 

14,201 

hours 

0.5 hours5 

0.5 hours 

x2,638 

funds6 

1,319 hours 

+ 54,890 

hours 

70,410 

hours 

Wage rate1 

$351 (blended rate 

for compliance 

attorney and senior 

programmer)3 

$351 (blended rate 

for compliance 

attorney and senior 

programmer)3 

Internal time costs 

$351 

$351 

x 14,201 funds 

$4,984,551 

$157.5 

$157.5 

x 2,638 funds 

$415,485 

1. These PRA estimates assume that the same types of professionals would be involved in satisfying the proposed reporting 

requirements that we believe otherwise would be involved in complying with this requirement The Commission's estimates of the 

relevant wage rates are based on the SIFMA Wage Report 

2. This estimate assumes that, after the initial 1 hour that a fund reporting on Form N-CEN to report the proposed ESG-related data 

elements, which we annualize over a 3-year period, the fund would incur 0.67 additional burden hours associated with ongoing 

preparation of the proposed reporting requirements per year The estimate of 1 hour is based on the following calculation. ((1 initial hour 

/3) + 0.67 hours of additional ongoing burden hours)= 1 hour. 

3. The $351 wage rate reflects current estimates of the blended hourly rate for an in-house compliance attorney ($368) and a senior 

programmer ($334). $351 is based on the following calculation: ($368+$334)/ 2 = $351. 

4. This estimate is based on the total number offunds required to complete Part C of Form N-CEN. 

5. This estimate assumes that, after the initial 0.5 hours that a fund reporting on Form N-CEN to report the proposed index-related data 

elements. which we annualize over a 3-year period, the fund would incur 0 3 additional burden hours associated with ongoing 

preparation of the proposed reporting requirements per year The estimate of 0.5 hour is based on the following calculation: ((0.5 initial 

hour /3) + 0.3 hours of additional ongoing burden hours)= 0.5 hours. 

6. This estimate is based on the number of index funds required to file Form N-CEN. 

Annual 

external cost 

burden 

$0 

$0 

$0 

$0 

$0 

+ 

$1,344,980 

$1,344,980 
36734 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

475See Investment Adviser Marketing, Final Rule, 

Investment Advisers Act Release No. 5653 (Dec. 22, 

2020) [81 FR 60418 (Mar. 5, 2021)] and 

corresponding submission to the Office of 

Information and Regulatory Affairs at Reginfo.gov 

(‘‘2021 Form ADV PRA’’). 

I. Form ADV 

The proposed amendments to Form 

ADV would increase the information 

requested in Form ADV Part 1A and 

Part 2 for RIAs, and Part 1A for ERAs. 

The estimated new burdens below also 

take into account changes in the 

numbers of advisers since the last 

approved PRA for Form ADV and 

increased costs due to inflation. Based 

on the prior amendments to Form ADV, 

we estimated the annual compliance 

burden to comply with the collection of 

information requirement of Form ADV 

is 433,004 burden hours and an external 

cost burden estimate of $14,125,083.475

Compliance with the disclosure 

requirements of Form ADV is 

mandatory, and the responses to the 

disclosure requirements will not be kept 

confidential. 

We propose the following changes to 

our PRA methodology for Form ADV: 

• Form ADV Parts 1 and 2. Form 

ADV PRA has historically calculated a 

per adviser per year hourly burden for 

Form ADV Parts 1 and 2 for each of (i) 

the initial burden and (ii) the ongoing 

burden, which reflects advisers’ filings 

of annual and other-than-annual 

updating amendments. We noted in 

previous PRA amendments that most of 

the paperwork burden for Form ADV 

Parts 1 and 2 would be incurred in the 

initial submissions of Form ADV. 

However, recent PRA amendments have 

continued to apply the total initial 

hourly burden for Parts 1 and 2 to all 

currently registered or reporting RIAs 

and ERAs, respectively, in addition to 

the estimated number of new advisers 

expected to be registering or reporting 

with the Commission annually. We 

believe that the total initial hourly 

burden for Form ADV Parts 1 and 2 

going forward should be applied only to 

the estimated number of expected new 

advisers annually. This is because 

currently registered or reporting 

advisers have generally already incurred 

the total initial burden for filing Form 

ADV for the first time. On the other 

hand, the estimated expected new 

advisers will incur the full total burden 

of initial filing of Form ADV, and we 

believe it is appropriate to apply this 

total initial burden to these advisers. We 

propose to continue to apply any new 

initial burdens resulting from proposed 

amendments to Form ADV Parts 1 and 

2, as applicable, to all currently 

registered or reporting investment 

advisers plus all estimated expected 

new RIAs and ERAs annually. 

• Private fund reporting. We have 

previously calculated advisers’ private 

fund reporting as a separate initial 

burden. The currently approved burden 

for all registered and exempt reporting 

advisers, including expected new 

registered advisers and new exempt 

reporting advisers, with respect to 

reported private funds, is 1 hour per 

private fund reported, which we have 

previously amortized over three years 

for all private fund advisers. We 

propose to continue to calculate 


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Total additional 

burden per filing 

(proposed new 

Item 7 of Form NCSR) 

Number of filings 

Total additional 

burden for Form NCSR 

Current burden 

estimates 

Revised burden 

estimates 

Notes: 

Internal initial 

burden hours 

18 hours 

TABLE 9: FORM N-CSR PRA ESTIMATES 

Internal annual 

burden hours1 Wage Rate2 Internal Time Costs 

PROPOSED AMEIJDMEIJTS TO FORM IJ-CSR 

$307 (blended 

rate for a senior 

accountant, 

11 hours3 X compliance $3,377 

attorney, and 

senior 

programmer)4 

x355 funds 6 x 355 funds 

3,905 hours $1,198,835 

TOTAL ESTIMATED BURDEIJS IIJCLUDIIJG AMEIJDMEIJTS 

+181,167 hours 

185,072 hours 

1. Includes initial burden estimates annualized over a 3-year period. 

Annual external cost 

burden 

$4,8725 

x 355 funds 

$1,729,560 

+$5,199,584 

$6,929,144 

2. These PRA estimates assume that the same types of professionals would be involved in satisfying the proposed reporting requirements that 

we believe otherwise would be involved in complying with this requirement. The Commission's estimates of the relevant wage rates are based 

on the SIFMA Wage Report 

3. This estimate assumes that, after the initial 18 hours that a fund would spend preparing the new item on Form N-CSR, which we annualize 

over a 3-year period, the fund would incur 5 additional burden hours associated with ongoing preparation of this item per year. The estimate of 

11 hours is based on the following calculation: ((18 initial hours/ 3) + 5 hours of additional ongoing burden hours)= 11 hours. 

4. The $307 wage rate reflects current estimates of the blended hourly rate for an in-house senior accountant ($218), compliance attorney 

($368), and a senior programmer ($334). $345 is based on the following calculation: ($368+$218+$334) / 3 = $307. 

5. $4,872 includes an estimated $1,956 for 4 hours of outside legal services and an estimated $2,916 for 4 hours of management consultant 

services. 

6. Based on the staff's estimate of the number of funds registered on Form N-1A and Form N-2 with climate-related terms included in the fund 

name or principal investment strategies. While funds make two filings on N-CSR annually, the disclosure required by this item would only be 

included on Form N-CSR with a fund's annual shareholder report. 
Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36735 

advisers’ private fund reporting as a 

separate reporting burden, but we 

propose to apply the initial burden only 

with respect to the expected new private 

funds. 


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Proposed additions (per 

adviser) to Part 1A Items 

5. 6. and 7, and 

corresponding schedules; 

Proposed additions to Pa rt 

2 brochure and wrap fee 

program brochure 

Current burden per 

adviser9 

Revised burden per 

adviser 

Total revised aggregate 

burden estimate 

No proposed changes 

Current burden per RIA 

Total updated aggregate 

burden estimate 

Proposed additions (per 

adviser) to Part 1A Items 

5, 6, and 7, and 

corresponding schedules 

Current burden per ERA 

Revised burden per ERA 

TABLE 10: FORM ADV PRA ESTIMATES 

Initial hours 

per year 

0.3 hours 

for Part 1A, 

other than 

private fund 

reporting+ 

0.8 hours5 

for Part 2 = 

1.1 hours 

29.72 

hours10 

29.72 hours 

+ 1.1 hours 

= 30.82 

hours 

27,921.86 14 

20 hours, 

amortized 

over three 

years= 

6.67 

hours18 

64,755.39 

hours21 

0.3 hours 

360 

hours25 

3 9 hours 

Internal annual 

amendment 

burden hours1 

0.4 hours0 

11.8 hours11 

0.4 hours+ 11.8 

hours = 12.2 hours 

173,545 hours15 

1.58 hours19 

14,189.98 hours"' 

N/A - would be 

included in the 

existing ongoing 

reporting burden 

for ERAs 

15 hours+ final 

filings2G 

1.5 hours+ final 

Wagerate2 

$279.50 per hour 

(blended rate for 

senior compliance 

examiner and 

compliance manager)' 

$273 per hour 

(blended rate for 

senior compliance 

examiner and 

compliance manager) 

$279.50 (blended rate 

for senior compliance 

examiner and 

compliance manager) 

Same as above 

$273 (blended rate for 

senior compliance 

examiner and 

compliance manager) 

Same as above 

$279.50 (blended rate 

for senior compliance 

examiner and 

compliance manager) 

$273 (blended rate for 

senior compliance 

examiner and 

compliance manager) 

$279 50 (blended rate 

Internal time costs 

1.5 hours x 

$279.50 per hour 

= $419.25 

(29. 72 + 11.8) X 

$273 = 

$11,334.96 

(30.82 + 12.2) X 

$279.5 = 

$12,024.09 

(27,921.86 + 

173,545) X $279.5 

= $56,309,987.37 

$273 X (6.67 + 

1.71) = $2,287 74 

$22,065,230.92 

(($279.50 X 

(64,755.39 hours 

+ 14,189.98 

hours)) 

Wage rate x total 

hours (see below) 

Annual external 

cost burden• 

1 hour of external 

legal services 

($496) for1⁄4 of 

advisers that 

pre pa re Pa rt 2; 1 

hour of external 

compliance 

consulting services 

($739)for1⁄2of 

advisers that 

prepare Part 28 

$2,069,250 

aggregated 

(previously 

presented only in 

the aggregate)12 

$4,689.5013 

$8,752, 98616 

$2,433.74 per 

adviser20 

$7,985,652 5"'' 

$0 

$0 

$0 
36736 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 


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Total revised aggregate 

burden estimate 

Proposed additions to Part 

1A Item 7, and 

corresponding schedules 

Current burden per 

adviser to private fund 

Revised burden per 

adviser to private fund 

Total revised burden 

estimate 

Current per adviser 

burden/external cost per 

adviser 

Revised per adviser 

burden/external cost per 

adviser 

Current aggregate burden 

estimates 

Revised aggregate burden 

estimates 

Notes: 

(0.3 hours+ filings (same as for senior compliance 

3.6 hours) above) examiner and 

compliance manager) 

2,639.427 7,780.1 hours28 Same as above 

N/A - would be 

included in the $279.50 (blended rate 

0.2 hours existing annual for senior compliance 

amendment examiner and 

reporting burden compliance manager) 

for ERAs 

1 hour per 

N/A- included in $273 (blended rate for 

the existing annual senior compliance private amendment examiner and fund3c burden compliance manager) 

$279.50 (blended rate 

1.2 hours N/A for senior compliance 

examiner and 

compliance manager) 

14,233 N/A Same as above hours32 

TOTAL ESTIMATED BURDENS. INCLUDING AMENDMENTS 

23.82 hours34 

15.74 hours3E 

433,004 initial and amendment hours annually38 

3O5,O64.7340 1nitial and amendnent hours annually 

$2,912,250.25 

($279.5 X (2,639.4 

+ 7. 780.1 hours)) 

Wage rate x total 

hours (see below) 

$3,978,123.5 

($279 5 X 14,233 

hours)) 

23.82 hours x 

$273 = $6,502.86 

per adviser cost of 

the burden hour 

15 hours x $279.5 

= $4,192.5 per 

adviser cost of the 

burden hour 

433.004 X $273 = 

$118,210,092 

aggregate cost of 

the burden hour 

290,831.73 X 

$279.5 = 

$81,287,468.54 

aggregate cost of 

the burden hour 

$0 

$0 

Cost of 

$46,865.74 per 

fund, applied to 

6% of RIAs that 

re port private 

funds 31 

$14,153,453 5033 

$77736 

$1,593.4437 

$14,125,08330 

$30,892,092.00 

41 

1. This column estimates the hourly burden attributable to annual and other-than-annual updating amendments to Form ADV, plus RI.A.s' ongoing obligations 

to deliver codes of ethics tc clients. 

2 As with Form ADV generally. and pursuant to the currently approved PRA (see 2021 Form ADV PRA). we expect that for most RIAs ard ERAs. the 

performance of these functions will most likely be equally allocated between a senior compliance examiner and a compliance manager, or persons performing 

similar functions. The Commission's estimates of the relevant wage rates are based on the SIFMAWage Report 

3. external tees are 111 add1t1on to the proJected hour per adviser burden. f-orm AIJV has a one-time 111rt:1al cost tor outside legal and compliance consulting tees 

in connection with the iriticl preparation of Parts 2 and 3 of the form. In addition to the estimated legal and compliance consulting fees, investment advisers 

of private funds incur one-t me costs with respect to the requirement for investment advisers to report the fair value of private fund assets. 

4. Based on Form ADV data as of December 2020. we estimate that there are :_3.812 RIAs (""current RIAs") and 413 advisers that are expected to become 

RIAs annually ("newly expected RIAs"). 

5 We estimate that 80% of RIAs incorporate ESG factors into their advisory services. which we believe is similar to the estimated percentage of registered 

funds that pursue either an ESG integration, ESG focused or ESG impact strategy. See discussion of PRA analysis for funds, above. Therefore, 11,380 RIAs 

(80% of the total of 14,225 combined current and expected RIAs that are required to complete Parts 1 and 2) would incur a burder of 1 hour, and 2.845 RIAs 

(20% of 14,225 combined current and expected RIAs that are required to complete Parts 1 and 2) would incur a burden of O hours. (11,380 RIAs x 1) + 
Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36737 


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(2,845 RIAs x 0) / 14,225 = 0.8 blended average hours per RIA 

6. We estimate that 11,380 RIAs (80% of the total of 14,225 combined current and expected RIAs that are required to complete Parts 1 and 2) would incur a 

burden of 0.5 hour, and 2,845 RIAs (20% of 14.225 current and expected RIAs that are required to complete Parts 1 and 2) would incur a burden of O hours. 

(11,380 RIAs x 0.5) + (2,845 RIAs x 0) / 14,225 = 0.4 blended average hours per RIA. 

7. The $279.50 wage rate reflects current estimates from the SIFMA Wage Re~ort of the blended hourly rate for a senior compliance examiner ($243) and a 

compliance manager ($316). ($243 + $316)/ 2 = $279.5. 

8. We estimate that a quarter of RIAs would seek the help of outside legal servi~es and half would seek the help of compliance consulting services in 

connection with the proposed amendments to Form ADV Part 2 This is based on previcus estimates and ratios we have used for advisers we expect to use 

external services for initially preparing various parts of Form ADV. See :2020 Form ADV PRA Renewal (the subsequent amendment to Form ADV described in 

the 2021 Form ADV PRA did not change that estimate). Because the SIFMA Wage Report does not include a specific rate for outside compliance consultant, 

we are proposing to use the rates in the SIFMA Wage Report for outside management consulta1t, as we have done in the past when estimating the rate of 

outside compliance counsel. We are adjusting these external costs for inflation, using the currently estimated costs for outside legal counsel and outside 

management consultants in the SIFMA Wage Report: $495 per hour for outside counsel, and $739 per hour for outside management consultant (compliance 

consultants). 

9. Per above, we are propooing to revioe the PRA calculation methodology to apply the full initial burden only to expected RIAo, ao we believe that current RIAo 

have generally already incurred the burden of initially preparing Form ADV. 

10. See 2020 Form ADV PRA Renewal (stating that the estimate average collection of information burden per adviser for Parts 1 and 2 is 29.22 hours, prior to 

the most recent amendment to Form ADV). See also 2021 Form ADV PRA (adding 0.5 hours to the estimated initial burden for Part 1A in connection with the 

most recent amendment to Form ADV). Therefore, the current estimated average initial collection of information hourly burden per adviser for Parts 1 and 2 is 

29. 72 hours (29.22 + 0.5 = 29.72). 

11. The currently approved average total annual burden for RIAs attributable to annual and other-than-annual updating amendments to Form ADV Parts 1 and 

2 is 10.5 hours per RIA. plus 1.3 hours per year for each RIA to meet its obligation to deliver co:Jes of ethics to clients (10.5 + 1.3 = 11.8 hours per adviser). 

See 2020 Form ADV PRA Renewal (these 2020 hourly estimates were not affected by the 2021 amendments to Form ADV). As we explained in previous PRAs, 

we estimate that each RIA filing Form ADV Part 1 will amend its form 2 times per year, which consists of one interim updating amendment (at an estimated 

0.5 hours per amendment), and one annual updating amendment (at an estimated 8 hours per amendment). each year. We also explained that we estimate 

in that each RIA will, on average, spend 1 hour per year making interim amendments tc brochure supplements, and an additional 1 hour per year to prepare 

brochure supplements as required by Form ADV Part 2. See id. 

12. See 2020 Form ADV PRA Renewal (the subsequent amendment to Form ADV described in the 2021 Form ADV PRA did not affect that estimate). 

13. External cost per RIA includes the external cost for initially preparing Part 2, which we have previously estimated to be approximately 10 hours of outside 

legal counsel for a quarter of RIAs, and 8 hours of outside management consulting services for half of RIAs. See 2020 Form ADV Renewal (these estimates 

were not affected by subsequent amendments to Form ADV). We add to this burden the estimated external cost associated with the proposed amendment (an 

additional hour of each, bringing the total to 11 hours and 9 hours, respectively, for1⁄4 and1⁄2 of RIAs, respectively). (((.25 x 13,812 RIAs) x ($496 x 11 hours)) 

+ ((0.50 x 13,812 RIAs)x ($739 x 9 hours)))/ 13,812 RIAs = $4,689.50 per adviser. 

14. Per above, we are proposing to revise the PRA calculation methodo ogyfor current RIAs to not apply the full initial burden to current RIAs, as we believe 

that current RIAs have generally already incurred the initial burden of preparing Form ADV. Therefore, we calculate the initial burden associated with 

complying with the proposed amendment of 1.1 initial hours x 13,812 current RIAs = 15,193.2 initial hours in the first year aggregated for current RIAs. We 

are not amortizing this burden because we believe current advisers will incur it in the first year. For expected RIAs, we estimate that they will incur the full 

revised initial burden, which is 30.82 hours per RIA. Therefore, 30.82 hours x 413 expected RIAs = 12,728.66 aggregate hours for expected RIAs. We do not 

amortize this burden for expected new RIAs because we expect a similar number of new RIAs to incur this initial burden each year. Therefore, the total revised 

aggregate initial burden for current and expected RIAs is 15,193.2 hours+ 12,728.66 hours= 27,921.86 aggregate initial hours. 

15. 12.2 amendment hours x (13,812 current RIAs + 413 expe~ted new RIAs) = 173,545 aggregate amendment hours. 

16. Per above, for current RIAs, we are proposing to not apply the currently approved external cost for initially preparing Part 2, because we believe that 

current RIAs have already incurred that initial external cost. For current RIAs, therefore, we are applying only the external cost we estimate they will incur in 

complying with the proposed amendment. Therefore, the revised total burden for current RIAs is (((.25 x 13,812 RIAs) x ($496 x 1 hour))+ ((0.50 x 13,812 

RIAs) x ($739 x 1 hour))) = $6.816.222 aggregated for current RIAs. We do not amortize this cost for current RIAs because we expect current RIAs will incur 

this initial cost in the first year. For expected RIAs, we apply the currently approved external cost for initially preparing Part 2 plus the estimated external cost 

for complying with the proposed amendment. Therefore, $4,689.50 per expected RIAx413 = $1,936,763.50 aggregated for expected RIAs. We do not 

amortize this cost for expected new RIAs because we expect a similar number of new RIAs to incur this external cost each year. $6,816,222 aggregated for 

current RIAs + $1,936. 763.50 aggregated for expected RIAs = $8,752,986 aggregated external cost for RIAs. 

17. Even though we are not proposing amendments to Form ACY Part 3 ("Form CRS"), the burdens associated with completing Part 3 are included in the PRA 

for purposes of updating the overall Form ADV information collection. Based on Form ADV data as of December 2020, we estimate that 8.617 current RIAs 

provide advice to retail investors and are therefore required to complete Form CRS, and we est mate an average of 364 expected new RIAs to be advising 

retail advisers and completing Form CRS for the first time annually. 

18. See Form CRS Relationship Summary; Amendments to Form ADV, Investment Advisers Act Release No. 524 7 (June 5, 2019) [84 FR 33492 (Sep. 10, 

2019)] ("2019 Form ADV PRA"). Subsequent PRA amendments for Form ADV have not adjusted the burdens or costs associated with Form CRS. Because 

Form CRS is still a new requirement for all applicable RIAs, we have, and are continuing to, apply the total initial burden to all current and expected new RIAs 

that are required to file Form CRS. and amortize that initial burden over three years for current RIAs 

19. As reflected in the currently approved PRA burden estimate. we stated that we expect advisers required to prepare and file the relationship summary on 

Form ADV Part 3 will spend an average 1 hour per year making amendnents to those relationship summaries and will likely amend the disclosure an average 

of 1 71 times per year. for approximately 1 58 hours per adviser. See 2019 Form ADV PRA (these estimates were not amended by the 2021 amendments to 

Form ADV). 

20. See 2020 Form ADV PRA Amendment (this cost was not affected by the subsequent amendment to Form ADV and was not updated in connection with 

that amendment while this amendment did not break out a per adviser cost. we calculated this cost from the aggregate total and the number of advisers we 

estimated prepared Form CRS). Note, however, that in our 2020 Form ADV PRA. Renewal, we applied the external cost only to expected new retail RIAs, 

whereas we had previously applied the external cost to current 3nd expected retail RIAs. We believe that since Form CRS is still a newly adopted requirement. 

we should continue to apply the cost to both current and expected new retail RIAs See 2019 Form ADV PRA 

21. 8,617 current RIAs x 6.67 hours each for initially preparing Form CRS = 57.4 75.39 aggregate hours for current RIAs initially filing Form CRS. For expected 

new RIAs initially filing Form CRS each year, we are not proposing to use the amortized initial burden estimate, because we expect a similar number of new 
36738 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 


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RIAs to incur the burden of initially preparing Form CRS each year. Therefore, 364 expected new RIAs x 20 initial hours for preparing Form CRS = 7,280 

aggregate initial hours for expected RIAs. 57.475.39 hours+ 7,280 hours= 64,755.39 aggregate hours for current and expected RIAs to initially prepare 

Form CRS. 

22. 1.58 hours x (8,617 current RIAs updating Form CRS + 364 expected new RIAs updating Form CRS) = 14,189.98 aggregate amendment hours per year 

for RIAs updating Form CRS. 

23. We have previously estimated the initial preparation of Form CRS would require 5 hours of external legal services for an estimated quarter of advisers that 

prepare Part 3. and 5 hours of external compliance consulting services for an estimated half of advisers that prepare Part 3. See 2020 PRA Renewal (these 

estimates were not amended by the most recent amendment to Form ADV). The hourly cost estimate of $496 and $739 for outside legal services and 

management consulting services, respectively, are based on an inflation-adjusted figure in the SIFMA Wage Report. Therefore, (((.25 x 8,617 current RIAs 

preparing Form CRS) x ($496 x 5 hours))+ ((0.50 x8,617 current RIAs preparirg Form CRS) x ($739 x 5 hours)))= $21,262.44 7.5. For current RIAs, since 

this is still a new requirement, we amortize this cost over three years for a per year initial external aggregated cost of $7,087.482.5. For expected RIAs that 

we expect would prepare Form CRS each year, we use the following formula: (((.25 x 364 expected RIAs preparing Form CRS) x ($496 x 5 hours))+ ((0.50 x 

364 expected RIAs preparing Form CRS) x ($739 x 5 hours))) = $898,170 aggregated cost for expected RIAs. We are not amortizing this initial cost because 

we estimate a similar number of new RIAs would incur this initial cost in preparing Form CRS each year, $7,087.482.5 + $898,170 = $7,985,652.5 

aggregate external cost for current and expected RIAs to initially prepare Form CRS. 

24. Based on Form ADV data as of December 2020, we estimate that there are 4,859 currently reporting ERAs ("current ERAs"), and an average of 303 

expected new ERAs annually("expected ERAs"). 

25. See 2021 Form ADV PR.A.. 

26. The previously approved average per adviser annual burden for ERAs attributable to annual and updating amendments to Form ADV is 1.5 hours. See 

2021 Form ADV PRA. As we have done in the past. we add to this burden the burden for ERAs making final filings, which we have previously estimated to be 

0.1 hour per applicable adviser, and we estimate that an expected 371 current ERAs will prepare final filings annually, based on Form ADV data as of 

December 2020. 

27. Per above, for current ERAs, we are proposing to not apply the currently approved burden for initially preparing Form ADV, because we believe that current 

ERAs have already incurred this burden. For current RIAs, therefore, we are ap~lying only the burden we estimate for the proposed amendment. Therefore, the 

revised total burden for current RIAs is 0.3 hour x 4,859 current ERAs = 1.457. 7 aggregate initial hours per year for current ERAs. We are not amortizing this 

burden because we expect current ERAs to incur this burden in the first year. For expected ERAs, we are applying the revised total initial burden of preparing 

Form ADV of 3.9 hours. Therefore, 3.9 hours x 303 expected new ERAs per year = 1,181, 7 aggregate initial hours for expected ERAs. For these expected 

ERAs. we are not proposing to amortize this burden, because we expect a similar number of new ERAs to incur this burden each year. Therefore, in total. 

1.457.7 hours+ 1,181.7 hours= 2,639.4 aggregate initial annual hours for current and expected ERAs. 

28. The previously approved average total annual burden of ERAs attributable to annual and updating amendments to Form ADV s 1.5 hours. See 2020 Form 

ADV Renewal (this estimate was not affected by the subsequent amendment to Form ADV). As we have done in the past, we added to this burden the 

currently approved burden for ERAs making final filings of 0.1 hour, and multiplied that by the number of final filings we are estimating ERAs would file per 

year (371 final filings based on Form ADV data as of December 2020). (1.5 hours x 4,859 currently reporting ERAs) + (0.1 hour x 371 final filings)= 7,325.6 

updated aggregated hours for currently reporting ERAs. For expected ERAs, the aggregate burden is 1.5 hours for each ERA attributable to annual and otherthan-annual updating amendments to Form ADV x 303 expected new ERAs = 454.5 annual aggregated hours for expected new ERAs updating Form ADV 

(other than for private fund reporting). The total aggregate amendment burden for ERAs (other than for private fund reporting) is 7,325.6 + 454.5 = 7,780.10 

hours. 

29. Based on Form ADV data as of December 2020, we estimate that 4,949 current RIAs advise 41,938 private funds, and expect an estimated 83 new RIAs 

will advise 332 reported private funds per year. We estimate that 4. 791 curren: ERAs advise 23.053 private funds. and estimate an expected 348 new ERAs 

will advise 697 reported private funds per year. Therefore, we estimate that there are 64,991 currently reported private funds reported by current private fund 

advisers (41,938 + 23,053), and there will be annually 1,029 new private funds reported by expected private fund advisers (332 + 697). The total number of 

current and expected new RIAs that report or are expected to report private funds is 5,032 (4.949 current RIAs that report private funds+ 83 expected RIAs 

that would report private funds). 

30. See 2020 Form ADV PR.A. Renewal (this per adviser burden was not affected by subsequent amendments to Form ADV). 

31. We previously estimated that an adviser without the internal capacity to value specific illiquid assets would obtain pricing or valuation services at an 

estimated cost of $37,625 each on an annual basis. See Rules Implementing Amendments to the Investment Advisers Act of 1940, Investment Advisers Act 

Release No. IA-3221 (June 22, 2011) [76 FR 42950 (July 19, 2011)]. However, because we estimated that external cost in 2011. we are proposing to use an 

inflation-adJusted cost of $46,865.74, based on the CPI calculator published by the Bureau of Labor Statistics at 

https//www.bls.gov/data/inflation_calculator.htm. As with previously approved PRA methodologies, we continue to estimate that 6% of RIAs have at least 

one private fund client that may not be audited. See 2020 Form ADV PRA Renewal. 

32. Per above, for currently reported private funds, we are proposing to not apply the currently approved burden for initially reporting private funds on Form 

ADV, because we believe that current private fund advisers have already incurred this burden. Therefore, we calculated the burden on current private fund 

advisers for only the proposed incremental new additional burden attributable to private fund reporting of 0.2 hours per private fund x 64,991 currently 

reported private funds= 12,998.2 aggregate hours for current private fund advisers. We expect advisers to incur this initial burden in the first year and are 

therefore not amortizing this burden. For the estimated 1,029 new private funds annually of expected private fund advisers, we calculate the initial burden of 

both the proposed incremental new additional burden attributable to private fund reporting of 0.2 hours per private fund, and the 1 hour initial burden per 

private fund. Therefore, 1.2 hours per expected new private fund x 1,029 expected new private funds= 1,234.8 aggregate hours for expected new private 

funds. For these expected new private funds. we are not proposing to amortize this burden. because we expect new private fund advisers to incur this burden 

with respect to new private funds each year. 12.998.2 hours+ 1,234.8 hours= 14,233 aggregate hours for private fund advisers. 

33. As with previously approved PRA methodologies, we continue to estimate that 6% of registered advisers have at least one private fund client that may not 

be audited, therefore we estimate that the total number of audits for current ard expected RIAs is 6% x 5,032 current and expected RIAs reporting private 

funds or expected to report private funds = 301.92 audits. We therefore estimate that approximately 302 registered advisers incur costs of $46,865.74 each 

on an annual basis (see note 31 describing the cost per audit), for an aggregate annual total cost of $14,153,453.48. 

34. 433,004 currently approved burden hours/ 18,179 advisers (current and expected annually)= 23.82 hours per adviser. See 2021 Form ADV PRA. 

35. $14,125.083 currently approved aggregate external cost/ 18,179 advisers (current and expected annually)= $777 blended average external cost per 

adviser. 

36. 305,064.73 aggregate annual hours for current and expected new advisers (see infra note 40) / (13,812 current RIAs + 413 expected RIAs + 4,859 

current ERAs +303 expected ERAs*) = 15. 7 4 blended average hours per adviser. * The parenthetical totals 19,387 current and expected advisers. 
Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36739 

476 5 U.S.C. 603(a). 

477See supra Section I. 

478See id. 

479See id. 

BILLING CODE 8011–01–C 

J. Request for Comments 

We request comment on our estimates 

for the new estimated burden hours and 

change in current burden hours, and 

their associated costs described above. 

Pursuant to 44 U.S.C. 3506(c)(2)(B), the 

Commission solicits comments in order 

to: (i) evaluate whether the proposed 

collections of information are necessary 

for the proper performance of the 

functions of the Commission, including 

whether the information will have 

practical utility; (ii) evaluate the 

accuracy of the Commission’s estimate 

of the burden of the proposed 

collections of information; (iii) 

determine whether there are ways to 

enhance the quality, utility, and clarity 

of the information to be collected; and 

(iv) determine whether there are ways to 

minimize the burden of the collections 

of information on those who are to 

respond, including through the use of 

automated collection techniques or 

other forms of information technology. 

The agency has submitted the proposed 

collections of information to OMB for 

approval. Persons wishing to submit 

comments on the collection of 

information requirements of the 

proposed amendments should direct 

them to the OMB Desk Officer for the 

Securities and Exchange Commission, 

MBX.OMB.OIRA.SEC_desk_officer@

omb.eop.gov, and should send a copy to 

Vanessa A. Countryman, Secretary, 

Securities and Exchange Commission, 

100 F Street NE, Washington, DC 

20549–1090, with reference to File No. 

S7–17–22. As OMB is required to make 

a decision concerning the collections of 

information between 30 and 60 days 

after publication of the proposal, a 

comment to OMB is best assured of 

having its full effect if OMB receives it 

within 30 days after publication of this 

release. Requests for materials 

submitted to OMB by the Commission 

with regard to these collections of 

information should be in writing, refer 

to File No. S7–17–22, and be submitted 

to the Securities and Exchange 

Commission, Office of FOIA Services, 

100 F Street NE, Washington, DC 

20549–2736. 

V. Initial Regulatory Flexibility 

Analysis 

The Commission has prepared the 

following Initial Regulatory Flexibility 

Analysis (‘‘IRFA’’) in accordance with 

section 3(a) of the Regulatory Flexibility 

Act (‘‘RFA’’).476 It relates to: (i) 

proposed amendments to fund 

prospectuses and annual reports, and 

Form N–CEN; (ii) proposed 

amendments to Form ADV Part 1A and 

Part 2A Brochure. 

A. Reason for and Objectives of the 

Proposed Action 

Many registered funds and investment 

advisers to institutional and retail 

clients consider ESG factors (as 

described above) in their investment 

strategies.477 We understand that some 

funds and advisers today engage in a 

diversity of different ESG investing 

practices, with varying levels of ESG 

factors consideration, in managing their 

investment strategies. Investor interest 

in ESG strategies has rapidly increased 

in recent years with significant inflows 

of capital to ESG-related services and 

investment products. Asset managers, as 

key conduits for these investments, have 

responded to this increase in investor 

demand by creating and marketing 

funds and strategies that consider ESG 

factors in their selection process. 

While advisers are required to adhere 

to disclosure rules that currently exist 

under the Federal securities laws and 

Commission rules, registered funds and 

investment advisers are not currently 

subject to specific ESG factors 

disclosure requirements in their ESG 

investing. Investors looking to 

participate in ESG investing therefore 

face a lack of consistent and comparable 

information among investment products 

and advisers that say they consider one 

or more ESG factors. This lack of 

consistent and comparable information 

can create a risk that a fund or adviser’s 

actual consideration of ESG does not 

match investor expectations, 

particularly given that funds and 

advisers implement ESG strategies in a 

variety of ways. This also creates the 

potential for ‘‘greenwashing,’’ as 

discussed above.478

We understand that some fund 

investors and advisory clients are 

seeking reliable, comprehensive, and 

comparable information about these 

ESG investing practices to enhance their 

investment decision making about for 

example, whether to invest in a 

particular ESG fund or to hire or retain 

an adviser that incorporates ESG factors 

into its advisory services.479

Accordingly, the Commission is 

proposing various disclosure and 

reporting requirements to provide 

shareholders and clients improved 

information from funds and advisers 

that consider one or more ESG factors. 

These enhancements are designed to 

help investors, and those who provide 

advice to investors, make more 

informed choices regarding ESG 

investing and better compare funds and 

investment strategies. The proposed 

enhancements create a framework for 

qualitative disclosures about a fund or 

adviser’s ESG related strategies, and 

enhance the quantitative data for 

environmentally focused strategies, 

where methodologies for reporting 

emissions metrics are becoming more 

standardized. In addition to these 

investor-facing disclosures, we are also 

proposing that funds and advisers report 

census type information on their ESG 

investment practices in regulatory 

reporting to the Commission, which 

would inform our regulatory 

enforcement, examination, disclosure 

review, and policymaking roles, and 

help us track trends in this evolving 

area of asset management. 

1. Proposed Amendments to Forms 

N–1A and N–2 and Fund Annual 

Reports 

We are proposing amendments to 

Forms N–1A and N–2 to provide 

additional information in fund 

prospectuses about the fund’s principal 

investment strategies to help investors 

better understand how the fund 

implements ESG factors. The level of 

detail required would depend on the 

extent to which a fund considers ESG 

factors in its investment process. ESGVerDate Sep<11>2014 20:16 Jun 16, 2022 Jkt 256001 PO 00000 Frm 00087 Fmt 4701 Sfmt 4702 E:\FR\FM\17JNP3.SGM 17JNP3

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37. $30,892 092.00 aggregate external cost for current and expected new advisers/ (19,387 advisers current and expected annually)= $1,593.44 blended 

average hours per adviser 

38. See 2021 Form ADV PRA 

39. See 2021 Form ADV PRA 

40. 27.921.86 hours+ 173,545 hours+ 64.755.39 hours+ 14,189.98 hours+ 2,639.4 hours+ 7,780.1 hours+ 14,233 hours= 305,064.73 aggregate 

annual hours for current and expected new advisers 

41. $8.752,986 + $7,985,652 50 + $14.153,453 50 = $30,892,092 00 
36740 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

Focused Funds would include specific 

disclosure about how the fund considers 

ESG factors in its investment process in 

tabular format and would include an 

overview of the fund’s ESG strategy, 

how the fund incorporates ESG factors 

in its investment decisions, and how the 

fund engages with companies in its 

investment portfolio about ESG issues 

(including, if applicable, an overview of 

its ESG voting policy). In addition, to 

the foregoing, Impact Funds would be 

required to disclose the ESG impact the 

fund seeks to generate with its 

investments as part of its investment 

objective. Integration Funds also be 

required to provide disclosure, but it 

would be limited to a description of 

how the fund incorporates ESG factors 

into its investment selection process. 

In addition to the amendments to 

Forms N–1A and N–2 focusing on 

prospectus disclosure, we are proposing 

amendments to fund annual reports to 

provide additional ESG-related 

information. Impact Funds would be 

required to discuss the fund’s progress 

on achieving its specific impact in 

quantifiable or numerical terms, and to 

discuss the factors that materially 

affected the fund’s ability to achieve its 

specific impact. Additionally, a fund for 

which proxy voting on ESG voting 

matters is a significant means of 

implementing its ESG strategy would be 

required to disclose certain information 

regarding how the fund voted proxies 

relating to portfolio securities on ESG 

voting matters during the reporting 

period, and a fund for which 

engagement with issuers on ESG matters 

is a significant means of implementing 

its ESG strategy would be required to 

disclose information about its ESG 

engagement meetings. Finally, the 

proposal would require an ESG-Focused 

Fund that considers environmental 

factors to disclose the aggregated GHG 

emissions of the portfolio. Collectively, 

the amendments to Forms N–1A and 

N–2 are designed to provide investors 

clear information about how a fund 

considers ESG factors and to address the 

significant variability in the ways 

different funds approach their 

consideration of ESG factors in their 

investment decisions. 

All of these requirements are 

discussed in detail above in Section 

II.A. The burdens of these requirements 

on small entities are discussed below as 

well as above in our Economic Analysis 

and Paperwork Reduction Act Analysis, 

which discuss the burdens on all 

investment companies. 

2. Proposed Amendments to Form 

N–8B–2 and Form S–6 

We are proposing amendments to 

Form N–8B–2 to provide additional 

information in fund prospectuses about 

how portfolios are selected based on 

ESG factors. The proposed amendment 

would require any UIT that provides 

exposures to portfolios that were 

selected based on one or more ESG 

factors to explain how those factors 

were used to select the portfolio 

securities. We believe these 

amendments will provide UIT investors 

with the ability to understand the role 

ESG factors played in the portfolio 

selection process. 

All of these requirements are 

discussed in detail above in Section 

II.A. The burdens of these requirements 

on small entities are discussed below as 

well as above in our Economic Analysis 

and Paperwork Reduction Act Analysis, 

which discuss the burdens on all 

investment companies. 

3. Proposed Amendments to Form 

N–CEN 

We are also proposing to amend Form 

N–CEN to collect census-type 

information about funds’ use of ESG 

factors (including use of ESG providers) 

in a structured format designed to 

provide the Commission and investors 

with consistent and comparable data. A 

fund would be required to indicate 

whether or not it incorporates ESG 

factors and, if it does incorporate ESG 

factors, to report: (i) the type of ESG 

strategy it employs, (ii) the ESG factor(s) 

it considers (i.e., E, S, and/or G), and 

(iii) if applicable, whether it considers 

ESG factors as part of its proxy voting 

policies and procedures. We believe that 

the proposed new data collected on 

Form N–CEN would assist both the 

Commission staff and investors in 

understanding the trends in this 

evolving space and to make more 

informed decisions about their selection 

of funds that consider ESG factors. 

All of these requirements are 

discussed in detail above in Section II.B. 

The burdens of these requirements on 

small advisers and broker-dealers are 

discussed below as well as above in our 

Economic Analysis and Paperwork 

Reduction Act Analysis, which discuss 

the burdens on all investment 

companies. 

4. Proposed Amendments to Form 

N–CSR 

We are proposing to amend Form 

N–CSR to provide additional 

information regarding any assumptions 

and methodologies the fund applied in 

calculating the portfolio’s GHG 

emissions disclosed in its prospectus or 

shareholder reports, and any limitations 

associated with the fund’s 

methodologies and assumptions, as well 

as explanations of any good faith 

estimates of GHG emissions the fund 

was required to make. BDCs, which do 

not file reports on Form N–CSR, would 

provide this information in their annual 

reports on Form 10–K. In addition to the 

above metrics, an ESG-Focused Fund 

that considers environmental factors 

would also be required to disclose the 

financed Scope 3 emissions of its 

portfolio companies, to the extent that 

Scope 3 emissions data is reported by 

the fund’s portfolio companies. 

Collectively, these amendments provide 

important context to information that 

we propose to require to be disclosed in 

the proposed amendments to Forms N– 

1A and N–2, consistent with a layered 

disclosure framework. 

All of these requirements are 

discussed in detail above in Section 

II.A. The burdens of these requirements 

on small advisers and broker-dealers are 

discussed below as well as above in our 

Economic Analysis and Paperwork 

Reduction Act Analysis, which discuss 

the burdens on all investment 

companies. 

5. Proposed Amendments to Form ADV 

(Parts 1 and 2) 

We are proposing amendments to 

both Form ADV Part 1A and Form ADV 

Part 2A (the brochure and the wrap fee 

program brochure) to address advisers’ 

uses of ESG factors in their advisory 

businesses. For the brochure, we are 

proposing to require ESG-related 

disclosures from advisers that consider 

ESG factors as part of their advisory 

businesses, including when making 

investment recommendations or 

decisions and when voting client 

securities. Our proposed requirements 

reflect that the brochure discloses key 

aspects of the advisory relationship, 

including a description of any services 

that are tailored to the individual needs 

of clients and any relationships with 

affiliates and third parties that present 

conflicts of interest and affect the 

adviser-client relationship. We also 

similarly proposing disclosures about a 

wrap fee program sponsor’s use of ESG 

factors, tailored to wrap fee programs, 

for the wrap fee program brochure. We 

are also proposing amendments to Form 

ADV Part 1A designed to collect 

information about an adviser’s 

considerations of ESG factors in its 

advisory business. These proposed 

amendments would expand the 

information collected about the advisory 

services provided to separately 


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Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36741 

480 17 CFR 270.0–10(a). 

481 17 CFR 275.0–7(a) (‘‘Advisers Act rule 

0–7(a)’’). 

482Based on SEC-registered investment adviser 

responses to Items 5.F. and 12 of Form ADV as of 

Dec. 2020. 

483See Form ADV, Part 1A, Schedule D, Section 

7.B.(1).A, Question 11. 

484Based on adviser data as of Dec. 2020. The 

number of small entity, non-U.S. RIAs is 130, out 

of 924 total non-U.S. RIAs. 130 is approximately 

14.1% of 940. 

485Based on adviser data as of Dec. 2020. 

486See Sections IV.B and IV.C, respectively. Cost 

estimates only refer to the paperwork collection 

costs estimated in connection with the PRA, not all 

possible costs associated with compliance. 

management account clients and 

reported private funds. 

All of these requirements are 

discussed in detail above in Sections 

II.B and II.C.2. The burdens of these 

requirements on small advisers and 

broker-dealers are discussed below as 

well as above in our Economic Analysis 

and Paperwork Reduction Act Analysis, 

which discuss the burdens on all 

advisers. 

B. Legal Basis 

The Commission is proposing the rule 

and form amendments contained in this 

document under the authority set forth 

in sections 8, 24, 30, and 38 of the 

Investment Company Act [15 U.S.C. 80a 

et seq.], sections 203, 204, and 211 of 

the Advisers Act [15 U.S.C. 80b et seq.], 

sections 5, 6, 7, 10, and 19 of the 

Securities Act [15 U.S.C. 77a et seq.], 

and sections 13, 15, 23, and 35A of the 

Exchange Act [15 U.S.C. 78b et seq.], 

and 44 U.S.C. 3506–3507. 

C. Small Entities Subject to the Rule and 

Rule Amendments 

1. Proposed Amendments to Forms 

N–1A, N–2, N–8B–2, N–CEN, N–CSR, 

and S–6 and Fund Annual Reports 

Under Commission rules, for the 

purposes of the Investment Company 

Act and the RFA, an investment 

company is a small entity if, together 

with other investment companies in the 

same group of related investment 

companies, it has net assets of $50 

million or less as of the end of its most 

recent fiscal year.480 Commission staff 

estimates that, as of June 2021, there 

were approximately 27 registered openend mutual funds, 6 registered open-end 

ETFs, 23 registered closed-end funds, 5 

unit investment trusts and 9 business 

development companies (collectively, 

70 funds) are small entities. 

2. Proposed Amendments to Form ADV 

Under Commission rules, for the 

purposes of the Advisers Act and the 

RFA, an investment adviser generally is 

a small entity if it: (1) has assets under 

management having a total value of less 

than $25 million; (2) did not have total 

assets of $5 million or more on the last 

day of the most recent fiscal year; and 

(3) does not control, is not controlled 

by, and is not under common control 

with another investment adviser that 

has assets under management of $25 

million or more, or any person (other 

than a natural person) that had total 

assets of $5 million or more on the last 

day of its most recent fiscal year.481

Our proposed new rules and 

amendments would not affect most 

investment advisers that are small 

entities (‘‘small advisers’’) because they 

are generally registered with one or 

more state securities authorities and not 

with the Commission. Under section 

203A of the Advisers Act, most small 

advisers are prohibited from registering 

with the Commission and are regulated 

by state regulators. Based on IARD data, 

we estimate that as of December 2020, 

approximately 434 SEC-registered 

advisers are small entities under the 

RFA.482 Because these entities are 

registered, they, like all SEC-registered 

investment advisers, would all be 

subject to the proposed amendments to 

Form ADV. 

The only small entity exempt 

reporting advisers that would be subject 

to the proposed amendments would be 

exempt reporting advisers that maintain 

their principal office and place of 

business outside the United States. 

Advisers with less than $25 million in 

assets under management generally are 

prohibited from registering with us 

unless they maintain their principal 

office and place of business outside the 

United States. Exempt reporting 

advisers are not required to report 

regulatory assets under management on 

Form ADV and therefore we do not have 

a precise number of exempt reporting 

advisers that are small entities. Exempt 

reporting advisers are required to report 

in Part 1A, Schedule D the gross asset 

value of each private fund they 

manage.483 Advisers with their 

principal office and place of business 

outside the United States may have 

additional assets under management 

other than what is reported in Schedule 

D. Based on IARD filings, approximately 

14.1% of registered investment advisers 

with their principal office and place of 

business outside the U.S. are small 

entities.484 There are approximately 

1,954 exempt reporting advisers with 

their principal office and place of 

business outside the U.S.485 We 

estimate that 14.1% of those advisers, 

approximately 276 exempt reporting 

advisers with their principal office and 

place of business outside the U.S., are 

small entities. 

D. Projected Reporting, Recordkeeping 

and Other Compliance Requirements 

1. Proposed Amendments to Forms 

N–1A, N–2, and N–CSR and Fund 

Annual Reports 

We propose to require a fund 

engaging in ESG investing to provide 

additional information about the fund’s 

principal investment strategies to help 

investors better understand how the 

fund implements ESG factors. The 

proposed amendments are designed to 

provide investors clear information 

about how a fund considers ESG factors 

and to address the significant variability 

in the ways different funds approach 

their consideration of ESG factors in 

their investment decisions. The level of 

detail required by this enhanced 

disclosure would depend on the extent 

to which a fund considers ESG factors 

in its investment process, with ESGFocused Funds providing detailed 

information in a tabular format while 

Integration Funds would provide more 

limited disclosures. 

For purposes of this analysis, we 

assume that all funds that are small 

entities would provide all proposed 

disclosures, even though whether or not 

a particular fund is required to provide 

certain disclosure depends on whether 

it considers ESG issues and whether it 

is an environmentally focused fund. 

Assuming that all funds that are small 

entities are ESG-Focused Funds that are 

also environmentally focused funds, we 

estimate that 65 funds that are small 

entities would be subject to these 

requirements. Of those, approximately 

33 prepare prospectuses pursuant to the 

requirements of Form N–1A and 32 

prepare prospectuses pursuant to the 

requirements of Form N–2. We estimate 

that compliance with the proposed 

amendments to Form N–1A would 

entail internal time costs of $4,272 (12 

hours) per fund, compliance with the 

proposed amendments to Form N–2 

would entail internal time costs of 

$4,272 (12 hours) per fund, and 

compliance with the proposed 

amendments to Form N–CSR would 

entail internal time costs of $3,377 (11 

hours) per fund.486 This would result in 

aggregate costs of approximately 

$234,960 for funds that are small 

entities that prepare prospectuses 

pursuant to Forms N–1A or N–2. In 

addition to prospectus disclosure on 

Form N–1A or N–2, as applicable, funds 

would be required to disclose certain 

information on their annual reports. Of 


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36742 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

487See Section IV.F. Cost estimates only refer to 

the paperwork collection costs estimated in 

connection with the PRA, not all possible costs 

associated with compliance. 

488See Section IV.D. Cost estimates only refer to 

the paperwork collection costs estimated in 

connection with the PRA, not all possible costs 

associated with compliance. 

489See Section IV.G. Cost estimates only refer to 

the paperwork collection costs estimated in 

connection with the PRA, not all possible costs 

associated with compliance. 

490 434 small entity RIAs + 276 small entity ERAs 

= 710 advisers. 

491See supra section IV.I. of this release. 

492See supra section IV.I. of this release. For the 

small entity RIAs the cost calculation is as follows: 

434 RIAs × $419.25 = $181,954.50 in internal cost 

average per RIA + (434 RIAs × .25 hrs) × $496) + 

(434 RIAs × .5 hrs) × $739) = $214,179 in external 

cost average per RIA for a total of $404,133.50. For 

the small entity ERAs the calculation is as follows: 

276 ERAs × (0.3 hours × 279.50) = $23,142. Cost 

estimates only refer to the paperwork collection 

costs estimated in connection with the PRA, not all 

possible costs associated with compliance. 

493See Proposed Instruction 10 to Item 24 of 

Form N–2 [17 CFR 274.11a–1]; Climate Disclosure 

Proposing Release, supra footnote 127. 

the estimated 65 small entity funds that 

would be subject to these requirements, 

we estimate that 56 are registered 

management investment companies and 

9 are BDCs. We estimate that the 

burdens of compliance with the 

proposed annual report disclosure 

requirements would be the same both 

for registered management investment 

companies and for BDCs, and that they 

would entail internal time costs of 

$9,052 (28 hours).487 This would result 

in aggregate costs of up to 

approximately $588,380. 

2. Proposed Amendments to Forms 

N–8B–2 and S–6 

We are proposing amendments to 

Form N–8B–2 that are designed to 

provide investors with clear information 

about how portfolios are selected based 

on ESG factors. The proposed 

amendments are intended to provide 

similar information to the proposed 

amendments to Forms N–1A and N–2 so 

that investors do not face a disclosure 

gap based on the type of fund they 

select, but the level of detail required by 

the proposed amendment reflects the 

unmanaged nature of UITs. We estimate 

that 5 UITs that are small entities would 

be subject to these requirements to the 

extent that they consider ESG factors in 

their strategy. We estimate that 

compliance with the proposed 

amendments to Form N–8B–2 and S–6 

would each entail internal time costs of 

$254 (0.67 hours) per UIT.488 This 

would result in aggregate costs of 

approximately $1,270 for UITs that are 

small entities that prepare prospectuses 

pursuant to Form N–8B–2. 

3. Proposed Amendments to Form 

N–CEN 

We are proposing amendments to 

Form N–CEN that are designed to 

collect census-type information 

regarding funds’ incorporation of ESG 

into their investment strategies and 

investment holdings, as well as the ESGrelated service providers they use in a 

structured data format. The proposed 

amendments are designed to 

complement the tailored narrative 

disclosure included in the fund 

prospectus and annual reports, and to 

give the Commission, investors and 

other market participants the ability to 

identify efficiently funds that 

incorporate ESG factors into their 

investment strategies and categorize 

funds based on the type of ESG strategy 

they employ. 

We estimate that 70 funds that are 

small entities would be subject to these 

requirements. We estimate that 

compliance with the proposed 

amendments to Form N–CEN would 

entail internal time costs of $351 (1 

hour) per fund.489 This would result in 

aggregate costs of approximately 

$24,570 for funds that are small entities. 

4. Proposed Amendments to Form ADV 

The proposed amendments to Form 

ADV would impose certain reporting, 

recordkeeping, and compliance 

requirements on all Commissionregistered advisers, including small 

advisers. All Commission-registered 

small advisers would be required to file 

Form ADV, including the proposed 

amendments. The proposed 

amendments to Form ADV would 

require registered investment advisers 

and exempt reporting advisers to report 

different or additional information than 

what is currently required. 

Approximately 710 small advisers 

currently registered, or reporting as an 

exempt reporting adviser, with us 

would be subject to these 

requirements.490 We expect these 434 

small entity RIAs to spend, on average, 

1.9 hours per year to respond to the 

proposed new and amended questions, 

for a total of 824.6 aggregate hours per 

year. We expect these 276 small entity 

ERAs to spend, on average, 0.3 hours 

per year to respond to the proposed new 

and amended questions, for a total of 

82.8 aggregate hours per year. The total 

for all small entity advisers would 

therefore be 907.4 hours per year.491 We 

expect the aggregate cost to small 

advisers associated with this burden 

would be $419,275.50.492

E. Duplicative, Overlapping, or 

Conflicting Federal Rules 

Commission staff has not identified 

any Federal rules that currently 

duplicate, overlap, or conflict with the 

proposed disclosure and reporting 

requirements. We recognize that the 

Commission also has proposed certain 

GHG disclosure requirements that 

would apply to BDCs in the Climate 

Disclosure Proposing Release. We 

believe the GHG disclosure 

requirements we are proposing in this 

release that would apply to a BDC that 

is an environmentally focused fund 

would complement the disclosure 

proposed in the Climate Disclosure 

Proposing Release if both proposals are 

adopted.493 We request comment on this 

belief, whether commenters perceive 

any duplication or overlap if both 

proposals are adopted and, if so, how 

the Commission should address any 

such duplication or overlap. 

F. Significant Alternatives 

The Regulatory Flexibility Act directs 

the Commission to consider significant 

alternatives that would accomplish the 

stated objective, while minimizing any 

significant adverse impact on small 

entities. The Commission considered 

the following alternatives for small 

entities in relation our proposed 

amendments: (1) Establishing different 

reporting, recordkeeping, and other 

compliance requirements or frequency, 

to account for resources available to 

small entities; (2) exempting small 

entities from the proposed reporting, 

recordkeeping, and other compliance 

requirements, to account for resources 

available to small entities; (3) clarifying, 

consolidating, or simplifying the 

compliance requirements under the 

proposal for small entities; and (4) using 

performance rather than design 

standards. 

1. Proposed Amendments to Forms 

N–1A, N–2, N–8B–2, N–CEN, N–CSR, 

and S–6 and Fund Annual Reports 

We do not believe that different 

compliance or reporting requirements or 

an exemption from coverage of the 

forms, or any part thereof, for small 

entities, would be appropriate for the 

amendments to Forms N–1A, N–2, 

N–8B–2, N–CEN, N–CSR, and S–6. 

Small entities currently follow the same 

requirements that large entities do when 

preparing, transmitting, and filing 

annual reports and preparing and 

sending or giving prospectuses to 

investors. The proposal is designed to 

address a disclosure gap under current 

law; if the proposal included different 

requirements for small funds, it could 

raise investor protection concerns for 

investors in small funds to the extent 


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Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36743 

494Public Law 104–121, Title II, 110 Stat. 857 

(1996) (codified in various sections of 5 U.S.C., 15 

U.S.C. and as a note to 5 U.S.C. 601). 

that investors in small funds would not 

receive the same disclosures as 

investors in larger funds. 

Similarly, we do not believe it would 

be appropriate to exempt small funds 

from the proposed amendments. As 

discussed above, our contemplated 

disclosure framework would be 

disrupted if investors in smaller funds 

received different disclosures than 

investors in larger funds. We believe 

that investors in all funds should benefit 

from the Commission’s proposed 

disclosure amendments, not just 

investors in large funds. Further, the 

amendments we are proposing generally 

only apply to ESG-Focused Funds, 

Integration Funds, and Impact Funds, 

the definitions of which require 

affirmative actions on the part of a fund 

by electing to make certain claims in its 

disclosure documents. To the extent a 

small entity wishes to be exempted from 

the rules, such an exemption is already 

available to all funds regardless of size 

simply by avoiding making claims that 

the Commission has determined require 

additional disclosure in order to protect 

investors. 

We do not believe that clarifying, 

consolidating, or simplifying the 

compliance requirements under the 

proposal for small funds would permit 

us to achieve our stated objectives. We 

have sought to create as clear, 

consolidated, and simple a regulatory 

framework as we believe appropriate 

under the circumstances. As noted 

above, due to the ‘‘opt-in’’ nature of 

many of the requirements, small entities 

are already able to benefit from a 

simpler regulatory framework simply by 

not making claims about certain ESG 

goals for which additional disclosure is 

necessary in order to protect investors. 

Finally, we do not believe it would be 

appropriate to use performance rather 

than design standards. As discussed 

above, we believe the regulatory 

disclosures that small funds provide to 

investors should be consistent with the 

disclosures provided to investors in 

larger entities. Our proposed disclosure 

requirements are tailored to meet the 

informational needs of different 

investors, and to implement a layered 

disclosure framework. We believe all 

fund investors should experience the 

anticipated benefits of the new 

disclosure requirements and that ESG 

disclosure should be uniform and 

standardized in order to allow investors 

to compare funds reporting the same 

information on the same frequency, and 

to help all investors to make more 

informed investment decisions based 

upon those comparisons. 

2. Proposed Amendments to Form ADV 

We do not believe that different 

compliance or reporting requirements or 

an exemption from coverage of the Form 

ADV, or any part thereof, for small 

entities, would be appropriate. Because 

the protections of the Advisers Act are 

intended to apply equally to clients of 

both large and small advisers, it would 

be inconsistent with the purposes of the 

Act to specify differences for small 

entities under the proposed 

amendments. In addition, as discussed 

above, our staff would use the 

information that advisers would 

maintain to help prepare for 

examinations of investment advisers. 

Establishing different conditions for 

large and small advisers would negate 

these benefits. 

We believe the current proposal is 

clear and that further clarification, 

consolidation, or simplification of the 

compliance requirements is not 

necessary. We also believe that using 

performance rather than design 

standards would be inconsistent with 

our statutory mandate to protect 

investors, as advisers must provide 

certain registration information in a 

uniform and quantifiable manner so that 

it is useful to our regulatory and 

examination program. 

G. Solicitation of Comments 

The Commission requests comments 

regarding matters discussed in this 

IRFA. We request comment on the 

number of small entities that would be 

subject to the proposed disclosure and 

reporting requirements and whether the 

proposed disclosure and reporting 

requirements would have any effects 

that have not been discussed. We 

request that commenters describe the 

nature of any effects on small entities 

subject to the proposed disclosure and 

reporting requirements and provide 

empirical data to support the nature and 

extent of such effects. We also request 

comment on the estimated compliance 

burdens of the proposed disclosure and 

reporting requirements and how they 

would affect small entities. 

VI. Consideration of Impact on the 

Economy 

For purposes of the Small Business 

Regulatory Enforcement Fairness Act of 

1996, or ‘‘SBREFA,’’ 494 we must advise 

OMB whether a proposed regulation 

constitutes a ‘‘major’’ rule. Under 

SBREFA, a rule is considered ‘‘major’’ 

where, if adopted, it results in or is 

likely to result in (1) an annual effect on 

the economy of $100 million or more; 

(2) a major increase in costs or prices for 

consumers or individual industries; or 

(3) significant adverse effects on 

competition, investment or innovation. 

We request comment on the potential 

effect of the proposed amendments on 

the U.S. economy on an annual basis; 

any potential increase in costs or prices 

for consumers or individual industries; 

and any potential effect on competition, 

investment or innovation. Commenters 

are requested to provide empirical data 

and other factual support for their views 

to the extent possible. 

Statutory Authority 

The Commission is proposing the rule 

and form amendments contained in this 

document under the authority set forth 

in the Securities Act, particularly, 

sections 5, 6, 7, 10, and 19 thereof [15 

U.S.C. 77a et seq.], the Exchange Act, 

particularly, sections 13, 15, 23, and 

35A thereof [15 U.S.C. 78a et seq.], the 

Investment Company Act, particularly, 

sections 8, 24, 30, and 38 thereof [15 

U.S.C. 80a et seq.], the Advisers Act, 

particularly, sections 203, 204, and 211 

thereof [15 U.S.C. 80b et seq.], and 44 

U.S.C. 3506–3507. 

List of Subjects in 17 CFR Parts 200, 

230, 232, 239, 249, 274, and 279 

Reporting and recordkeeping 

requirements, Securities. 

Text of Proposed Rule and Form 

Amendments 

For the reasons set out in the 

preamble, title 17, chapter II of the Code 

of Federal Regulations is proposed to be 

amended as follows: 

PART 200—ORGANIZATION; 

CONDUCT AND ETHICS; AND 

INFORMATION AND REQUESTS 

Subpart N—Commission Information 

Collection Requirements Under the 

Paperwork Reduction Act: OMB 

Control Numbers 

■ 1. The authority citation for part 200, 

subpart N, continues to read as follows: 

Authority: 44 U.S.C. 3506; 44 U.S.C. 3507. 

■ 2. Amend § 200.800 in the table in 

paragraph (b) by adding an entry for 

‘‘Form N–CSR’’ between the entries for 

‘‘Form N–27F–1’’ and ‘‘Form N–PORT’’ 

to read as follows: 


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§ 200.800 OMB control numbers assigned 

pursuant to the Paperwork Reduction Act. 

* * * * * 

(b) * * * 

Information collection requirement 

17 CFR part 

or section 

where 

identified and 

described 

Current OMB 

control No. 

*******

Form N–CSR ........................................................................................................................................................... 274.128 3235–0570 

* * * * * * * 

PART 230—GENERAL RULES AND 

REGULATIONS, SECURITIES ACT OF 

1933 

■ 3. The authority citation for part 230 

continues to read, in part, as follows: 

Authority: 15 U.S.C. 77b, 77b note, 77c, 

77d, 77f, 77g, 77h, 77j, 77r, 77s, 77z–3, 77sss, 

78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o–7 note, 

78t, 78w, 78ll(d), 78mm, 80a–8, 80a–24, 80a– 

28, 80a–29, 80a–30, and 80a–37, and Pub. L. 

112–106, sec. 201(a), sec. 401, 126 Stat. 313 

(2012), unless otherwise noted. 

* * * * * 

Sections 230.400 to 230.499 issued under 

secs. 6, 8, 10, 19, 48 Stat. 78, 79, 81, and 85, 

as amended (15 U.S.C. 77f, 77h, 77j, 77s). 

* * * * * 

■ 4. Amend § 230.485 by revising 

paragraph (c)(3) to read as follows: 

§ 230.485 Effective date of post-effective 

amendments filed by certain registered 

investment companies. 

* * * * * 

(c) * * * 

(3) A registrant’s ability to file a posteffective amendment, other than an 

amendment filed solely for purposes of 

submitting an Interactive Data File, 

under paragraph (b) of this section is 

automatically suspended if a registrant 

fails to submit any Interactive Data File 

(as defined in § 232.11 of this chapter) 

required by the form on which the 

registrant is filing the post-effective 

amendment. A suspension under this 

paragraph (c)(3) shall become effective 

at such time as the registrant fails to 

submit an Interactive Data File as 

required by the relevant form. Any such 

suspension, so long as it is in effect, 

shall apply to any post-effective 

amendment that is filed after the 

suspension becomes effective, but shall 

not apply to any post-effective 

amendment that was filed before the 

suspension became effective. Any 

suspension shall apply only to the 

ability to file a post-effective 

amendment pursuant to paragraph (b) of 

this section and shall not otherwise 

affect any post-effective amendment. 

Any suspension under this paragraph 

(c)(3) shall terminate as soon as a 

registrant has submitted the Interactive 

Data File required by the relevant form. 

* * * * * 

■ 5. Amend § 230.497 by revising 

paragraphs (c) and (e) to read as follows: 

§ 230.497 Filing of investment company 

prospectuses—number of copies. 

* * * * * 

(c) For investment companies filing 

on §§ 239.15A and 274.11A of this 

chapter (Form N–1A), §§ 239.17a and 

274.11b of this chapter (Form N–3), 

§§ 239.17b and 274.11c of this chapter 

(Form N–4), or §§ 239.17c and 274.11d 

of this chapter (Form N–6), within five 

days after the effective date of a 

registration statement or the 

commencement of a public offering after 

the effective date of a registration 

statement, whichever occurs later, 10 

copies of each form of prospectus and 

form of Statement of Additional 

Information used after the effective date 

in connection with such offering shall 

be filed with the Commission in the 

exact form in which it was used. 

Investment companies filing on Form 

N–1A, N–3, N–4, or N–6 must submit an 

Interactive Data File (as defined in 

§ 232.11 of this chapter) if required by 

the form on which the registrant files its 

registration statement. 

* * * * * 

(e) For investment companies filing 

on §§ 239.15A and 274.11A of this 

chapter (Form N–1A), §§ 239.17a and 

274.11b of this chapter (Form N–3), 

§§ 239.17b and 274.11c of this chapter 

(Form N–4), or §§ 239.17c and 274.11d 

of this chapter (Form N–6), after the 

effective date of a registration statement, 

no prospectus that purports to comply 

with Section 10 of the Act (15 U.S.C. 

77j) or Statement of Additional 

Information that varies from any form of 

prospectus or form of Statement of 

Additional Information filed pursuant to 

paragraph (c) of this section shall be 

used until five copies thereof have been 

filed with, or mailed for filing to the 

Commission. Investment companies 

filing on Form N–1A, N–3, N–4, or N– 

6 must submit an Interactive Data File 

(as defined in § 232.11 of this chapter) 

if required by the Form on which the 

registrant files its registration statement. 

* * * * * 

PART 232—REGULATION S–T— 

GENERAL RULES AND REGULATIONS 

FOR ELECTRONIC FILINGS 

■ 6. The general authority citation for 

part 232 continues to read as follows: 

Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 

77s(a), 77z–3, 77sss(a), 78c(b), 78l, 78m, 78n, 

78o(d), 78w(a), 78ll, 80a–6(c), 80a–8, 80a–29, 

80a–30, 80a–37, 7201 et seq.; and 18 U.S.C. 

1350, unless otherwise noted. 

* * * * * 

■ 7. Amend § 232.11 by revising the 

definition of ‘‘Related Official Filing’’ to 

read as follows: 

§ 232.11 Definition of terms used in this 

part. 

* * * * * 

Related Official Filing. The term 

Related Official Filing means the ASCII 

or HTML format part of the official 

filing with which all or part of an 

Interactive Data File appears as an 

exhibit or, in the case of a filing on 

Form N–1A (§§ 239.15A and 274.11A of 

this chapter), Form N–2 (§§ 239.14 and 

274.11a–1 of this chapter), Form N–3 

(§§ 239.17a and 274.11b of this chapter), 

Form N–4 (§§ 239.17b and 274.11c of 

this chapter), Form N–6 (§§ 239.17c and 

274.11d of this chapter), Form N–8B–2 

(§ 274.12 of this chapter), Form S–6 

(§ 239.16 of this chapter), and Form N– 

CSR (§§ 249.331 and 274.128 of this 

chapter), and, to the extent required by 

§ 232.405 [Rule 405 of Regulation S–T] 

for a business development company as 

defined in Section 2(a)(48) of the 

Investment Company Act of 1940 (15 

U.S.C. 80a–2(a)(48)), Form 10–K 

(§ 249.310 of this chapter), Form 10–Q 

(§ 249.308a of this chapter), and Form 

8–K (§ 249.308 of this chapter), the 

ASCII or HTML format part of an official 

filing that contains the information to 


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which an Interactive Data File 

corresponds. 

* * * * * 

■ 8. Amend § 232.405 by: 

■ a. Revising the introductory text, 

paragraphs (a)(2), (a)(3)(i) introductory 

text, (a)(3)(ii), (a)(4), (b)(1) introductory 

text, (b)(2) introductory text, and 

(b)(2)(i), (iii), and (iv); 

■ b. Adding paragraphs (b)(2)(v) and 

(vi); 

■ c. Revising paragraph (b)(3)(iii); and 

■ d. Revising the final sentence of Note 

1 to the section. 

The revisions and additions read as 

follows: 

§ 232.405 Interactive Data File 

submissions. 

This section applies to electronic 

filers that submit Interactive Data Files. 

Section 229.601(b)(101) of this chapter 

(Item 601(b)(101) of Regulation S–K), 

paragraph (101) of Part II—Information 

Not Required to be Delivered to Offerees 

or Purchasers of Form F–10 (§ 239.40 of 

this chapter), paragraph 101 of the 

Instructions as to Exhibits of Form 20– 

F (§ 249.220f of this chapter), paragraph 

B.(15) of the General Instructions to 

Form 40–F (§ 249.240f of this chapter), 

paragraph C.(6) of the General 

Instructions to Form 6–K (§ 249.306 of 

this chapter), General Instruction C.3.(g) 

of Form N–1A (§§ 239.15A and 274.11A 

of this chapter), General Instruction I of 

Form N–2 (§§ 239.14 and 274.11a–1 of 

this chapter), General Instruction C.3.(h) 

of Form N–3 (§§ 239.17a and 274.11b of 

this chapter), General Instruction C.3.(h) 

of Form N–4 (§§ 239.17b and 274.11c of 

this chapter), General Instruction C.3.(h) 

of Form N–6 (§§ 239.17c and 274.11d of 

this chapter), General Instruction 2.(l) of 

Form N–8B–2 (§ 274.12 of this chapter), 

General Instruction 5 of Form S–6 

(§ 239.16 of this chapter), and General 

Instruction C.4 of Form N–CSR 

(§§ 249.331 and 274.128 of this chapter) 

specify when electronic filers are 

required or permitted to submit an 

Interactive Data File (§ 232.11), as 

further described in note 1 to this 

section. This section imposes content, 

format, and submission requirements for 

an Interactive Data File, but does not 

change the substantive content 

requirements for the financial and other 

disclosures in the Related Official Filing 

(§ 232.11). 

(a) * * * 

(2) Be submitted only by an electronic 

filer either required or permitted to 

submit an Interactive Data File as 

specified by § 229.601(b)(101) of this 

chapter (Item 601(b)(101) of Regulation 

S–K), paragraph (101) of Part II— 

Information Not Required to be 

Delivered to Offerees or Purchasers of 

Form F–10 (§ 239.40 of this chapter), 

paragraph 101 of the Instructions as to 

Exhibits of Form 20–F (§ 249.220f of this 

chapter), paragraph B.(15) of the General 

Instructions to Form 40–F (§ 249.240f of 

this chapter), paragraph C.(6) of the 

General Instructions to Form 6–K 

(§ 249.306 of this chapter), General 

Instruction C.3.(g) of Form N–1A 

(§§ 239.15A and 274.11A of this 

chapter), General Instruction I of Form 

N–2 (§§ 239.14 and 274.11a–1 of this 

chapter), General Instruction C.3.(h) of 

Form N–3 (§§ 239.17a and 274.11b of 

this chapter), General Instruction C.3.(h) 

of Form N–4 (§§ 239.17b and 274.11c of 

this chapter), General Instruction C.3.(h) 

of Form N–6 (§§ 239.17c and 274.11d of 

this chapter), General Instruction 2.(l) of 

Form N–8B–2 (§ 274.12 of this chapter), 

General Instruction 5 of Form S–6 

(§ 239.16 of this chapter), or General 

Instruction C.4 of Form N–CSR 

(§§ 249.331 and 274.128 of this chapter), 

as applicable; 

(3) * * * 

(i) If the electronic filer is not a 

management investment company 

registered under the Investment 

Company Act of 1940 (15 U.S.C. 80a et 

seq.), a separate account as defined in 

Section 2(a)(14) of the Securities Act (15 

U.S.C. 77b(a)(14)) registered under the 

Investment Company Act of 1940, a 

business development company as 

defined in Section 2(a)(48) of the 

Investment Company Act of 1940 (15 

U.S.C. 80a–2(a)(48)), or a unit 

investment trust as defined in Section 

4(2) of the Investment Company Act of 

1940 (15 U.S.C. 80a–4), and is not 

within one of the categories specified in 

paragraph (f)(1)(i) of this section, as 

partly embedded into a filing with the 

remainder simultaneously submitted as 

an exhibit to: 

* * * * * 

(ii) If the electronic filer is a 

management investment company 

registered under the Investment 

Company Act of 1940 (15 U.S.C. 80a et 

seq.), a separate account (as defined in 

Section 2(a)(14) of the Securities Act (15 

U.S.C. 77b(a)(14)) registered under the 

Investment Company Act of 1940, a 

business development company as 

defined in Section 2(a)(48) of the 

Investment Company Act of 1940 (15 

U.S.C. 80a–2(a)(48)), or a unit 

investment trust as defined in Section 

4(2) of the Investment Company Act of 

1940 (15 U.S.C. 80a–4), and is not 

within one of the categories specified in 

paragraph (f)(1)(ii) of this section, as 

partly embedded into a filing with the 

remainder simultaneously submitted as 

an exhibit to a filing that contains the 

disclosure this section requires to be 

tagged; and 

(4) Be submitted in accordance with 

the EDGAR Filer Manual and, as 

applicable, either Item 601(b)(101) of 

Regulation S–K (§ 229.601(b)(101) of 

this chapter), paragraph (101) of Part 

II—Information Not Required to be 

Delivered to Offerees or Purchasers of 

Form F–10 (§ 239.40 of this chapter), 

paragraph 101 of the Instructions as to 

Exhibits of Form 20–F (§ 249.220f of this 

chapter), paragraph B.(15) of the General 

Instructions to Form 40–F (§ 249.240f of 

this chapter), paragraph C.(6) of the 

General Instructions to Form 6–K 

(§ 249.306 of this chapter), General 

Instruction C.3.(g) of Form N–1A 

(§§ 239.15A and 274.11A of this 

chapter), General Instruction I of Form 

N–2 (§§ 239.14 and 274.11a–1 of this 

chapter), General Instruction C.3.(h) of 

Form N–3 (§§ 239.17a and 274.11b of 

this chapter), General Instruction C.3.(h) 

of Form N–4 (§§ 239.17b and 274.11c of 

this chapter), General Instruction C.3.(h) 

of Form N–6 (§§ 239.17c and 274.11d of 

this chapter); General Instruction 2.(l) of 

Form N–8B–2 (§ 274.12 of this chapter); 

General Instruction 5 of Form S–6 

(§ 239.16 of this chapter); or General 

Instruction C.4 of Form N–CSR 

(§§ 249.331 and 274.128 of this chapter). 

(b) * * * 

(1) If the electronic filer is not a 

management investment company 

registered under the Investment 

Company Act of 1940 (15 U.S.C. 80a et 

seq.), a separate account (as defined in 

Section 2(a)(14) of the Securities Act (15 

U.S.C. 77b(a)(14)) registered under the 

Investment Company Act of 1940, a 

business development company as 

defined in Section 2(a)(48) of the 

Investment Company Act of 1940 (15 

U.S.C. 80–2(a)(48)), or a unit investment 

trust as defined in Section 4(2) of the 

Investment Company Act of 1940 (15 

U.S.C. 80–4), an Interactive Data File 

must consist of only a complete set of 

information for all periods required to 

be presented in the corresponding data 

in the Related Official Filing, no more 

and no less, from all of the following 

categories: 

* * * * * 

(2) If the electronic filer is an openend management investment company 

registered under the Investment 

Company Act of 1940, a separate 

account (as defined in Section 2(a)(14) 

of the Securities Act) registered under 

the Investment Company Act of 1940 

(15 U.S.C. 80a et seq.), or a unit 

investment trust as defined in Section 

4(2) of the Investment Company Act of 

1940 (15 U.S.C. 80a–4), an Interactive 

Data File must consist of only a 


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complete set of information for all 

periods required to be presented in the 

corresponding data in the Related 

Official Filing, no more and no less, 

from the information set forth in: 

(i) Items 2, 3, and 4 of Form N–1A 

(§§ 239.15A and 274.11A of this 

chapter); and, as applicable, the 

information provided in response to 

Item 9(b)(2) of Form N–1A pursuant to 

Instructions 1 or 2, as well as any 

information provided in response to 

Item 27(b)(7)(i)(B)–(E) of Form N–1A 

included in any annual report filed on 

Form N–CSR; 

* * * * * 

(iii) Items 2, 4, 5, 10, and 17 of Form 

N–4 (§§ 239.17b and 274.11c of this 

chapter); 

(iv) Items 2, 4, 5, 10, 11, and 18 of 

Form N–6 (§§ 239.17c and 274.11d of 

this chapter); 

(v) Item 11 of Form N–8B–2 (§ 274.12 

of this chapter), pursuant to Instruction 

2, including to the extent required by 

§ 239.16 of this chapter (Form S–6); or 

(vi) Item 7 of Form N–CSR (§§ 249.331 

and 274.128 of this chapter), as 

applicable. 

(3) * * * 

(iii) As applicable, all of the 

information provided in response to 

Items 3.1, 4.3, 8.2.b, 8.2.d, 8.2.e, 8.3.a, 

8.3.b, 8.5.b, 8.5.c, 8.5.e, 10.1.a–d, 

10.2.a–c, 10.2.e, 10.3, and 10.5 of Form 

N–2 in any registration statement or 

post-effective amendment thereto filed 

on Form N–2; or any form of prospectus 

filed pursuant to § 230.424 of this 

chapter (Rule 424 under the Securities 

Act); or, if a Registrant is filing a 

registration statement pursuant to 

General Instruction A.2 of Form N–2, 

any documents filed pursuant to 

Sections 13(a), 13(c), 14, or 15(d) of the 

Exchange Act, any to the extent such 

information appears therein; as well as 

any information provided in response to 

Instructions 4.g.(1)(B)–(E) or 10 to Item 

24 of Form N–2 that is included in any 

annual report filed on Form N–CSR or 

Form 10–K. 

* * * * * 

Note 1 to § 232.405: * * * For an 

issuer that is a management investment 

company, unit investment trust or 

separate account registered under the 

Investment Company Act of 1940 (15 

U.S.C. 80a et seq.) or a business 

development company as defined in 

Section 2(a)(48) of the Investment 

Company Act of 1940 (15 U.S.C. 80a– 

2(a)(48)), or a unit investment trust as 

defined in Section 4(2) of the 

Investment Company Act of 1940 (15 

U.S.C. 80a–4), General Instruction 

C.3.(g) of Form N–1A (§§ 239.15A and 

274.11A of this chapter), General 

Instruction I of Form N–2 (§§ 239.14 and 

274.11a–1 of this chapter), General 

Instruction C.3.(h) of Form N–3 

(§§ 239.17a and 274.11b of this chapter), 

General Instruction C.3.(h) of Form N– 

4 (§§ 239.17b and 274.11c of this 

chapter), General Instruction C.3.(h) of 

Form N–6 (§§ 239.17c and 274.11d of 

this chapter), General Instruction 2.(l) of 

Form N–8B–2 (§ 274.12 of this chapter), 

General Instruction 5 of Form S–6 

(§ 239.16 of this chapter), and General 

Instruction C.4 of Form N–CSR 

(§§ 249.331 and 274.128 of this chapter), 

as applicable, specifies the 

circumstances under which an 

Interactive Data File must be submitted. 

PART 239—FORMS PRESCRIBED 

UNDER THE SECURITIES ACT OF 1933 

■ 9. The general authority citation for 

part 239 continues to read as follows: 

Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 

77s, 77z–2, 77z–3, 77sss, 78c, 78l, 78m,78n, 

78o(d), 78o–7 note, 78u–5, 78w(a), 78ll, 

78mm, 80a–2(a), 80a–3, 80a–8, 80a–9, 80a– 

10, 80a–13, 80a–24, 80a–26, 80a–29, 80a–30, 

and 80a–37; and sec. 107, Pub. L. 112–106, 

126 Stat. 312, unless otherwise noted. 

* * * * * 

■ 10. Amend Form S–6 (referenced in 

§ 239.16) by adding Instruction 5 to the 

General Instructions to read as follows: 

Note: The text of Form S–6 does not, and 

this amendment will not, appear in the Code 

of Federal Regulations. 

FORM S–6 

* * * * * 

General Instructions 

* * * * * 

Instruction 5. Interactive Data 

(a) An Interactive Data File as defined 

in Rule 11 of Regulation S–T [17 CFR 

232.11] is required to be submitted to 

the Commission in the manner provided 

by Rule 405 of Regulation S–6 [17 CFR 

232.405] for any registration statement 

or post-effective amendment thereto on 

Form S–6 that includes or amends 

information provided in response to 

Item 11 of Form N–8B–2 (as provided 

pursuant to Instruction 1.(a) of the 

Instructions As To The Prospectus of 

this Form). 

(1) Except as required by paragraph 

(a)(2), the Interactive Data File must be 

submitted as an amendment to the 

registration statement to which the 

Interactive Data File relates. The 

amendment must be submitted on or 

before the date the registration 

statement or post-effective amendment 

that contains the related information 

becomes effective. 

(2) In the case of a post-effective 

amendment to a registration statement 

filed pursuant to paragraphs (b)(1)(i), 

(ii), (v), or (vii) of Rule 485 under the 

Securities Act [17 CFR 230.485(b)], the 

Interactive Data File must be submitted 

with the filing to which the Interactive 

Data Filing relates on or before the date 

the post-effective amendment that 

contains the related information 

becomes effective. 

(b) All interactive data must be 

submitted in accordance with the 

specifications in the EDGAR Filer 

Manual. 

PART 274—FORMS PRESCRIBED 

UNDER THE INVESTMENT COMPANY 

ACT OF 1940 

■ 11. The general authority citation for 

part 274 continues to read as follows: 

Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 

78c(b), 78l, 78m, 78n, 78o(d), 80a–8, 80a–24, 

80a–26, 80a–29, and 80a–37, unless 

otherwise noted. 

* * * * * 

■ 12. Amend Form N–1A (referenced in 

§§ 239.15A and 274.11A) by: 

■ a. Revising General Instruction C.3(g); 

■ b. Revising Item 2; 

■ c. Revising Item 4(a); 

■ d. In Item 9, adding Instructions to 

Item 9(b)(2); and 

■ e. Revising Item 27(b)(7)(i). 

The revisions and additions read as 

follows: 

Note: The text of Form N–1A does not, and 

this amendment will not, appear in the Code 

of Federal Regulations. 

FORM N–1A 

* * * * * 

General Instructions 

* * * * * 

C. * * * 

3. * * * 

(g) Interactive Data 

(i) An Interactive Data File (§ 232.11 

of this chapter) is required to be 

submitted to the Commission in the 

manner provided by rule 405 of 

Regulation S–T [17 CFR 232.405] for 

any registration statement or posteffective amendment thereto on Form 

N–1A that includes or amends 

information provided in response to 

Items 2, 3, and 4, and, as applicable, any 

information provided in response to 

Item 9(b)(2) pursuant to Instructions 1 

or 2. 

(A) * * * 

(B) * * * 

(ii) An Interactive Data File is 

required to be submitted to the 

Commission in the manner provided by 

rule 405 of Regulation S–T for any form 

of prospectus filed pursuant to 


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paragraphs (c) or (e) of rule 497 under 

the Securities Act [17 CFR 230.497(c) or 

(e)] that includes information provided 

in response to Items 2, 3, 4, or Item 

9(b)(2) pursuant to Instructions 1 or 2 

that varies from the registration 

statement. The Interactive Data File 

must be submitted with the filing made 

pursuant to rule 497. 

(iii) An Interactive Data File is 

required to be submitted to the 

Commission in the manner provided by 

rule 405 of Regulation S–T for any 

information provided in response to 

Item 27(b)(7)(i)(B)–(E) of Form N–1A 

that is included in any annual report 

filed on Form N–CSR. 

(iv) All interactive data must be 

submitted in accordance with the 

specifications in the EDGAR Filer 

Manual, and in such a manner that will 

permit the information for each Series 

and, for any information that does not 

relate to all of the Classes in a filing, 

each Class of the Fund to be separately 

identified. 

* * * * * 

Item 2. * * * 

Disclose the Fund’s investment 

objectives or goals. A Fund also may 

identify its type or category (e.g., that it 

is a Money Market Fund or a balanced 

fund). 

Instruction. If the Fund is an 

Environmental, Social, or Governance 

(‘‘ESG’’) Impact Fund, as defined in 

Item 4(a)(2)(i)(C), disclose the ESG 

impact that the Fund seeks to generate 

with its investments. 

* * * * * 

Item 4. * * * 

(a) Principal Investment Strategies of 

the Fund. 

(1) Based on the information given in 

response to Item 9(b), summarize how 

the Fund intends to achieve its 

investment objectives by identifying the 

Fund’s principal investment strategies 

(including the type or types of securities 

in which the Fund invests or will invest 

principally) and any policy to 

concentrate in securities of issuers in a 

particular industry or group of 

industries. 

(2) Environmental, Social and 

Governance (‘‘E,’’ ‘‘S,’’ or ‘‘G,’’ and 

collectively, ‘‘ESG’’) Considerations. 

(i) Definitions 

(A) ‘‘Integration Fund’’ is a Fund that 

considers one or more ESG factors 

alongside other, non-ESG factors in its 

investment decisions, but those ESG 

factors are generally no more significant 

than other factors in the investment 

selection process, such that ESG factors 

may not be determinative in deciding to 

include or exclude any particular 

investment in the portfolio. 

(B) ‘‘ESG-Focused Fund’’ is a Fund is 

a Fund that focuses on one or more ESG 

factors by using them as a significant or 

main consideration (1) in selecting 

investments or (2) in its engagement 

strategy with the companies in which it 

invests. An ESG-Focused Fund includes 

(i) any fund that has a name including 

terms indicating that the Fund’s 

investment decisions incorporate one or 

more ESG factors; and (ii) any Fund 

whose advertisements, as defined 

pursuant to rule 482 under the 

Securities Act of 1933 [17 CFR 230.482], 

or sales literature, as defined pursuant 

to rule 34b–1 under the Investment 

Company Act of 1940 [17 CFR 270.34b– 

1], indicate that the Fund’s investment 

decisions incorporate one or more ESG 

factors by using them as a significant or 

main consideration in selecting 

investments. 

(C) ‘‘Impact Fund’’ is an ESG-Focused 

Fund that seeks to achieve a specific 

ESG impact or impacts. 

(ii) If the Fund considers ESG factors 

as part of its principal investment 

strategies, based on the information 

given in response to Item 9(b)(2), 

provide the following disclosure: 

(A) If the Fund is an Integration Fund, 

summarize in a few sentences how the 

Fund incorporates ESG factors into the 

investment selection process, including 

what ESG factors the Fund considers. 

(B) If the Fund is an ESG-Focused 

Fund, disclose the following 

information in a tabular format in the 

order specified below. 


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36748 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

Instructions 

1. The table should precede other 

disclosure required by Item 4(a). 

Disclosure provided in the table does 

not need to be repeated as narrative 

disclosure in Item 4(a)(1). 

2. The Fund may replace the term 

‘‘ESG’’ in each row with another term or 

phrase that more accurately describes 

the applicable ESG factors the Fund 

considers. The Fund also may replace 

the term ‘‘the Fund’’ in each row with 

an appropriate pronoun, such as ‘‘we’’ 

or ‘‘our.’’ 

3. The Fund’s disclosure for each row 

should be brief and limited to the 

information required by the row’s 

instruction. Funds should use lists and 

other text features designed to provide 

overviews. Electronic versions of the 

summary prospectus should include a 

hyperlink to the location where the 

information is described in greater 

detail. 

4. Overview of the Fund’s [ESG] 

strategy. Provide a concise description 

in a few sentences of the ESG factor or 

factors that are the focus of the Fund’s 

strategy. The Fund must also include 

the list shown in the table above of 

common ESG strategies in a ‘‘check the 

box’’ style and indicate with a check 

mark or other feature all that apply. The 

Fund should only check the box for 

proxy voting or engagement with issuers 

(or both, as applicable) if it is a 

significant means of implementing the 

Fund’s ESG strategy, meaning that the 

Fund, as applicable, regularly and 

proactively votes proxies or engages 

with issuers on ESG issues to advance 

one or more particular ESG goals the 

fund has identified in advance. 

5. How the Fund incorporates [ESG] 

factors in its investment decisions. 

Summarize how the Fund incorporates 

ESG factors into its investment process 

for evaluating, selecting, or excluding 

investments. The summary must 

include, as applicable: 

(a) An overview of how the Fund 

applies any inclusionary or 

exclusionary screen, including a brief 

explanation of the factors the screen 

applies, such as particular industries or 

business activities it seeks to include or 

exclude, and if applicable, what 

exceptions apply to the inclusionary or 

exclusionary screen. For these purposes, 

an inclusionary screen is a method of 

selecting investments based on ESG 

criteria. An exclusionary screen starts 

with a given universe of investments 

and then excludes investment based on 

ESG criteria. If applicable, state what 

exceptions apply to the inclusionary or 

exclusionary screen. In addition, state 

the percentage of the portfolio, in terms 

of net asset value, to which the screen 

is applied, if less than 100%, excluding 

cash and cash equivalents held for cash 

management, and explain briefly why 

the screen applies to less than 100% of 

the portfolio. 

(b) An overview of how the Fund uses 

an internal methodology, third-party 

data provider, such as a scoring or 

ratings provider, or a combination of 

both. 

(c) The name of any index the Fund 

tracks and a brief description of the 

index and how the index utilizes ESG 

factors in determining its constituents. 

Information must be provided with 

respect to each applicable common ESG 

strategy (e.g., inclusionary and 

exclusionary screens) in a disaggregated 

manner if more than one applies. For 

example, inclusionary screening must 

be explained distinctly from 

exclusionary screening. Funds may use 

multiple rows or other text features to 


lotter on DSK11XQN23PROD with PROPOSALS3EP17JN22.023</GPH>

[ESG] Strategy Overview 

The Fund engages in the following to implement its [ESG] Strategy 

(check all that apply): 

□ Tracks an index 

□ Applies an inclusionary screen 

□ Applies an exclusionary screen 

□ Seeks to achieve a specific impact 

□ Proxy voting 

□ Engagement with issuers 

□ Other 
Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36749 

clearly identify the disclosure related to 

each applicable common ESG strategy. 

6. How the Fund incorporates [ESG] 

factors in its investment decisions. As 

applicable, provide an overview of any 

third-party ESG frameworks that the 

Fund follows as part of its investment 

process. 

7. How the Fund incorporates [ESG] 

factors in its investment decisions. An 

Impact Fund must provide an overview 

of the impact(s) the Fund is seeking to 

achieve and how the Fund is seeking to 

achieve the impact(s). The overview 

must include (i) how the Fund measures 

progress toward the specific impact, 

including the key performance 

indicators the Fund analyzes, (ii) the 

time horizon the Fund uses to analyze 

progress, and (iii) the relationship 

between the impact the Fund is seeking 

to achieve and financial return(s). State 

that the Fund reports annually on its 

progress in achieving the impact(s) in 

the Fund’s annual report to 

shareholders. 

8. How the Fund votes proxies and/or 

engages with companies about [ESG] 

issues. The Fund must fill out this row 

regardless of whether the proxy voting 

or engagement boxes are checked. The 

Fund must describe briefly how the 

Fund engages or expects to engage with 

issuers on ESG issues (whether by 

voting proxies or otherwise). The Fund 

must state whether it has specific or 

supplemental policies and procedures 

that include one or more ESG 

considerations in voting proxies and, if 

so, state which considerations. If the 

Fund seeks to engage other than through 

shareholder voting, such as through 

meetings with or advocacy to 

management, the Fund must provide an 

overview of the objectives it seeks to 

achieve with the engagement strategy. If 

the Fund does not engage or expect to 

engage with issuers on ESG issues 

(whether by voting proxies or 

otherwise), the Fund must provide that 

disclosure in the row. 

* * * * * 

Item 9. * * * 

(b) * * * 

(2) * * * 

Instructions 

1. If the Fund is an Integration Fund, 

as defined in Item 4(a)(2)(i)(A), describe 

how the Fund incorporates ESG factors 

into its investment selection process, 

including: 

(a) The ESG factors that the Fund 

considers. 

(b) If the Fund considers the GHG 

emissions of its portfolio holdings as an 

ESG factor in its investment selection 

process, describe how the Fund 

considers the GHG emissions of its 

portfolio holdings, including a 

description of the methodology the 

Fund uses for this purpose. 

2. If the Fund is an ESG-Focused 

Fund, as defined in Item 4(a)(2)(i)(B), 

describe how the Fund incorporates 

ESG factors into its investment process, 

including: 

(a) The index methodology for any 

index the fund tracks, including any 

criteria or methodologies for selecting or 

excluding components of the index that 

are based on ESG factors. 

(b) Any internal methodology used 

and how that methodology incorporates 

ESG factors. 

(c) The scoring or ratings system of 

any third-party data provider, such as a 

scoring or ratings provider, used by the 

Fund or other third-party provider of 

ESG-related data about companies, 

including how the Fund evaluates the 

quality of such data. 

(d) The factors applied by any 

inclusionary or exclusionary screen, 

including any quantitative thresholds or 

qualitative factors used to determine a 

company’s industry classification or 

whether a company is engaged in a 

particular activity. 

(e) A description of any third-party 

ESG frameworks that the Fund follows 

as part of its investment process and 

how the framework applies to the Fund. 

(f) With regard to engagement, 

whether by voting proxies or otherwise, 

a description of specific objectives of 

such engagement, including the Fund’s 

time horizon for progressing on such 

objectives and any key performance 

indicators that the Fund uses to analyze 

or measure of the effectiveness of such 

engagement. 

* * * * * 

Item 27. * * * 

(b) * * * 

(7) * * * 

(i)(A) Discuss the factors that 

materially affected the Fund’s 

performance during the most recently 

completed fiscal year, including the 

relevant market conditions and the 

investment strategies and techniques 

used by the Fund’s investment adviser. 

(B) If the Fund is an Impact Fund as 

defined in Item 4(a)(2)(i)(C), summarize 

briefly the Fund’s progress on achieving 

the impacts described in response to 

Instruction 7 of Item 4(a)(2) in both 

qualitative and quantitative terms 

during the reporting period, and the key 

factors that materially affected the 

Fund’s ability to achieve the impact(s). 

(C) If the Fund is an ESG-Focused 

Fund, as defined in Item 4(a)(2)(i)(B), 

and indicates that it uses proxy voting 

as a significant means of implementing 

its ESG strategy in response to Item 

C.3(j)(iii) on Form N–CEN, disclose the 

percentage of ESG voting matters during 

the reporting period for which the Fund 

voted in furtherance of the initiative. 

The Fund may limit this disclosure to 

voting matters involving the ESG factors 

the Fund incorporates into its 

investment decisions. The Fund, other 

than a business development company, 

also must include a cross reference, and 

for electronic versions of the 

shareholder report include a hyperlink, 

to its most recent complete voting 

record filed on Form N–PX. 

(D) If the Fund is an ESG-Focused 

fund, as defined in Item 4(a)(2)(i)(B), 

and indicates that it uses ESG 

engagement as a significant means of 

implementing its ESG strategy in 

response to Item C.3(j)(iii) on Form N– 

CEN, discuss the Fund’s progress on any 

key performance indicators. Disclose the 

number or percentage of issuers with 

which the Fund held ESG engagement 

meetings and total number of ESG 

engagement meetings. For this purpose, 

an ‘‘ESG engagement meeting’’ is a 

substantive discussion with 

management of an issuer advocating for 

one or more specific ESG goals to be 

accomplished over a given time period, 

where progress that is made toward 

meeting such goal is measurable, that is 

part of an ongoing dialogue with the 

issuer regarding this goal. If personnel 

of the Fund’s adviser hold an ESG 

engagement meeting with an issuer on 

behalf of multiple Funds advised by the 

adviser, each Fund for which the 

meeting is within its ESG strategy may 

count the ESG engagement meeting. 

(E) If a Fund is an ESG-Focused fund, 

as defined in Item 4(a)(2)(i)(B), and 

indicates that it considers 

environmental factors in response to 

Item C.3(j)(ii) on Form N–CEN, except 

for an ESG-Focused fund that 

affirmatively states in the ‘‘ESG Strategy 

Overview’’ table required by Item 

4(a)(2)(ii)(B) that it does not consider 

the greenhouse gases (‘‘GHG’’) 

emissions of the portfolio companies in 

which it invests, disclose the following 

aggregated GHG emissions metrics of 

the portfolio for the reporting period: (1) 

Carbon Footprint and (2) Weighted 

Average Carbon Intensity. Calculate 

these metrics using the methodologies 

in the instructions below, and provide 

all related disclosures. 

Instructions 

1. Computation of Aggregated GHG 

Emissions 

(a) Carbon Footprint: Disclose the 

total GHG emissions associated with the 

Fund’s portfolio, normalized by the 

Fund’s net asset value and expressed in 


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36750 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

tons of carbon dioxide equivalent 

(‘‘CO2e’’) per million dollars invested in 

the Fund. Calculate the Portfolio Carbon 

Footprint as follows for each portfolio 

holding: 

(i) Calculate the enterprise value of 

the portfolio company. Enterprise value 

is the sum of the portfolio company’s 

equity value and the book value of its 

short- and long-term debt. 

(ii) Calculate the GHG emissions 

associated with each portfolio holding 

by dividing the current value of the 

holding by the enterprise value of the 

portfolio company. Then, multiply the 

resulting value by the portfolio 

company’s Scope 1 and Scope 2 

emissions. 

(iii) Add the GHG emissions 

associated with all portfolio holdings, 

then divide the resulting amount by the 

Fund’s net asset value to derive the 

Fund’s carbon footprint. 

(b) Weighted Average Carbon 

Intensity: Disclose the Fund’s exposure 

to carbon-intensive companies, 

expressed in tons of CO2e per million 

dollars of the portfolio company’s total 

revenue, calculated as follows for each 

portfolio holding: 

(i) Calculate the portfolio weight of 

each portfolio holding by dividing the 

current value of the portfolio holding by 

the current net asset value of the Fund’s 

whole portfolio. 

(ii) Calculate the GHG emissions of 

each portfolio company by dividing the 

portfolio company’s Scope 1 and Scope 

2 emissions by the portfolio company’s 

total revenue. 

(iii) Multiply the portfolio weight of 

each portfolio holding by the GHG 

emissions of each portfolio company. 

The sum of these values for all portfolio 

holdings is the Fund’s weighted average 

carbon intensity. 

(c) Scope 3 Emissions: If the fund 

holds investments in portfolio 

companies that disclose their Scope 3 

emissions, disclose the Scope 3 

emissions associated with the Fund’s 

portfolio, to the extent Scope 3 

emissions are publicly available as 

provided in Instruction (d)(x) of this 

Item, using the Carbon Footprint 

methodology described in paragraph (a) 

of this Item. 

(i) Disclose Scope 3 emissions 

separately for each industry sector in 

which the Fund invests, as well as the 

percentage of the fund’s net asset value 

invested in each industry sector. 

(d) GHG Metric Calculation Data: To 

calculate the GHG emissions as 

discussed in paragraphs (a), (b) and (c) 

above, apply the following definitions, 

data inputs, and assumptions: 

(i) CO2e means the common unit of 

measurement to indicate the global 

warming potential of each greenhouse 

gas, expressed in terms of the global 

warming potential of one unit of carbon 

dioxide. 

(ii) Global warming potential means a 

factor describing the global warming 

impacts of different greenhouse gases. It 

is a measure of how much energy will 

be absorbed in the atmosphere over a 

specified period of time as a result of 

the emission of one ton of a greenhouse 

gas, relative to the emissions of one ton 

of carbon dioxide. 

(iii) Greenhouse gases (‘‘GHG’’) means 

carbon dioxide, methane, nitrous oxide, 

nitrogen trifluoride, 

hydrofluorocarbons, perfluorocarbons, 

and sulfur hexafluoride. 

(iv) GHG emissions means direct and 

indirect emissions of greenhouse gases 

expressed in metric tons of CO2e, of 

which: 

(A) Direct emissions are GHG 

emissions from sources that are owned 

or controlled by a portfolio company. 

(B) Indirect emissions are GHG 

emissions that result from the activities 

of the portfolio company, but occur at 

sources not owned or controlled by the 

portfolio company. 

(v) Scope 1 emissions are direct GHG 

emissions from operations that are 

owned or controlled by a portfolio 

company. 

(vi) Scope 2 emissions are indirect 

GHG emissions from the generation of 

purchased or acquired electricity, steam, 

heat, or cooling that is consumed by 

operations owned or controlled by a 

portfolio company. 

(vii) Scope 3 emissions are all indirect 

GHG emissions not otherwise included 

in a portfolio company’s Scope 2 

emissions, which occur in the upstream 

and downstream activities of a portfolio 

company’s value chain. 

(viii) Value chain means the upstream 

and downstream activities related to a 

portfolio company’s operations. 

Upstream activities in connection with 

a value chain may include activities by 

a party other than the portfolio company 

that relate to the initial stages of a 

portfolio company’s production of a 

good or service (e.g., materials sourcing, 

materials processing, and supplier 

activities). Downstream activities in 

connection with a value chain may 

include activities by a party other than 

the portfolio company that relate to 

processing materials into a finished 

product and delivering it or providing a 

service to the end user (e.g., 

transportation and distribution, 

processing of sold products, use of sold 

products, end of life treatment of sold 

products, and investments). 

(ix) A portfolio company or portfolio 

holding means a Fund’s investment in, 

including an indirect investment 

through a derivatives instrument: 

(A) An issuer that is engaged in or 

operates a business or activity that 

generates GHG emissions; or 


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current value of portfolio holding 

portfolio company's enterprise value 

X portfolio company's Scope 1 and Scope 

2 emissions 

current portfolio net asset value 

current value of portfolio holding 

X 

current portfolio net asset value 

portfolio company's Scope 1 and Scope 

2 emissions 

portfolio company's total revenue ($M) 
Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36751 

(B) An investment company, or entity 

that would be an investment company 

under section 3(a) of the Investment 

Company Act but for the exceptions to 

that definition provided for in sections 

3(c)(1) and 3(c)(7) of the Investment 

Company Act, that invests in issuers 

described in paragraph A of this 

subsection, except for an investment in 

reliance on § 270. 12d1–1. 

(x) Use the values necessary to 

calculate the portfolio company’s equity 

value, total debt, and total revenue: (1) 

from the portfolio company’s most 

recent public report required to be filed 

with the Commission pursuant to the 

Securities Exchange Act or the 

Securities Act (‘‘regulatory report’’) 

containing such information) or, (2) 

absent a regulatory report, based on 

information provided by the portfolio 

company. If a portfolio company’s total 

revenue is reported in currency other 

than US dollars, convert the reported 

revenue into US dollars using the 

exchange rate as of the date of the 

relevant regulatory report providing the 

company’s revenue. 

(xi) Sources of portfolio company 

emissions data. 

(A) If the portfolio company reports 

Scope 1, Scope 2, and Scope 3 

emissions in a regulatory report, the 

Fund must use the Scope 1, Scope 2, or 

Scope 3 emissions in the portfolio 

company’s most recent regulatory 

report. 

(B) If the portfolio company does not 

report its Scope 1, Scope 2, and Scope 

3 emissions as described in subsection 

1 of this instruction, the Fund must use 

Scope 1, Scope 2, or Scope 3 emissions 

that are publicly provided by the 

portfolio company. 

(C) If the portfolio company does not 

report or otherwise publicly provide its 

Scope 1 and Scope 2 emissions, use a 

good faith estimate of the portfolio 

company’s Scope 1 and Scope 2 

emissions. Discuss briefly how the Fund 

calculates such estimates, including the 

sources of data for determining such 

estimates, and the percentage of the 

Fund’s aggregated GHG emissions for 

which the Fund used estimates rather 

than reported emissions. 

(xii) Use the value of each portfolio 

holding and the net asset value of the 

portfolio as of the end of the Fund’s 

most recently completed fiscal year. 

(xiii) If a Fund obtains exposure to a 

portfolio company by entering into a 

derivatives instrument, the derivatives 

instrument will be treated as an 

equivalent position in the securities of 

the portfolio company that are 

referenced in the derivatives 

instrument. A derivatives instrument for 

this purpose means any swap, securitybased swap, futures contract, forward 

contract, option, any combination of the 

foregoing, or any similar instrument. 

* * * * * 

■ 13. Amend Form N–2 (referenced in 

§§ 239.14 and 274.11a–1) by: 

■ a. Revising General Instructions I.2 

and 3, redesignating I.5 as I.6, and 

adding new I.5; 

■ b. Adding Item 8.2.e; and 

■ c. Revising Instructions 4.g.(1) and 10 

to Item 24. 

The revisions and additions read as 

follows: 

Note: The text of Form N–2 does not, and 

this amendment will not, appear in the Code 

of Federal Regulations. 

FORM N–2 

* * * * * 

General Instructions 

* * * * * 

I. Interactive Data 

* * * 

2. An Interactive Data File is required 

to be submitted to the Commission in 

the manner provided by Rule 405 of 

Regulation S–T for any registration 

statement or post-effective amendment 

thereto filed on Form N–2 or for any 

form of prospectus filed pursuant to 

Rule 424 under the Securities Act [17 

CFR 230.424] that includes or amends 

information provided in response to 

Items 3.1, 4.3, 8.2.b, 8.2.d, 8.2.e, 8.3.a, 

8.3.b, 8.5.b, 8.5.c, 8.5.e, 10.1.a–d, 

10.2.a–c, 10.2.e, 10.3, or 10.5. The 

Interactive Data File must be submitted 

either with the filing, or as an 

amendment to the registration statement 

to which it relates, on or before the date 

the registration statement or posteffective amendment that contains the 

related information becomes effective. 

Interactive Data Files must be submitted 

with the filing made pursuant to Rule 

424. 

3. If a Registrant is filing a registration 

statement pursuant to General 

Instruction A.2, an Interactive Data File 

is required to be submitted to the 

Commission in the manner provided by 

Rule 405 of Regulation S–T for any of 

the documents listed in General 

Instruction F.3.(a) or General Instruction 

F.3.(b) that include or amend 

information provided in response to 

Items 3.1, 4.3, 8.2.b., 8.2.d, 8.2.e, 8.3.a, 

8.3.b, 8.5.b, 8.5.c, 8.5.e, 10.1.a–d, 

10.2.a–c, 10.2.e, 10.3, or 10.5. The 

Interactive Data File must be submitted 

with the filing of the document(s) listed 

in General Instruction F.3.(a) or General 

Instruction F.3.(b). 

* * * 

5. An Interactive Data File is required 

to be submitted to the Commission in 

the manner provided by Rule 405 of 

Regulation S–T for any information 

provided in response to Instructions 

4.g.(1)(B)–(E) or 10 to Item 24 of Form 

N–2 that is included in any annual 

report filed on Form N–CSR or Form 

10–K. 

* * * * * 

Part A—Information Required in a 

Prospectus 

* * * * * 

Item 8. * * * 

2. * * * 

e. Environmental, Social, and 

Governance (‘‘E,’’ ‘‘S,’’ or ‘‘G,’’ and 

collectively, ‘‘ESG’’) Considerations 

(1) Definitions. 

(A) ‘‘Integration Fund’’ is a Fund that 

considers one or more ESG factors 

alongside other, non-ESG factors in its 

investment decisions, but those ESG 

factors are generally no more significant 

than other factors in the investment 

selection process, such that ESG factors 

may not be determinative in deciding to 

include or exclude any particular 

investment in the portfolio. 

(B) ‘‘ESG-Focused Fund’’ is a Fund 

that focuses on one or more ESG factors 

by using them as a significant or main 

consideration (1) in selecting 

investments or (2) in its engagement 

strategy with the companies in which it 

invests. An ESG-Focused Fund includes 

(i) any fund that has a name including 

terms indicating that the Fund’s 

investment decisions incorporate one or 

more ESG factors; and (ii) any Fund 

whose advertisements, as defined 

pursuant to rule 482 under the 

Securities Act of 1933 [17 CFR 230.482], 

or sales literature, as defined pursuant 

to rule 34b–1 under the Investment 

Company Act of 1940 [17 CFR 270.34b– 

1], indicate that the Fund’s investment 

decisions incorporate one or more ESG 

factors by using them as a significant or 

main consideration in selecting 

investments. 

(C) ‘‘Impact Fund’’ is an ESG-Focused 

Fund that seeks to achieve a specific 

ESG impact or impacts. 

(2) If the Fund considers ESG factors 

as part of its principal portfolio 

emphasis, provide the following 

disclosure: 

(A) If the Fund is an Integration Fund, 

summarize in a few sentences how the 

Fund incorporates ESG factors into the 

investment selection process, including 

what ESG factors the Fund considers. 

(B) If the Fund is an ‘‘ESG-Focused 

Fund,’’ disclose the following 

information in a tabular format in the 

order specified below. 


lotter on DSK11XQN23PROD with PROPOSALS3
36752 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

Instructions 

1. The table should precede other 

disclosure required by Item 8.2. 

2. The Fund may replace the term 

‘‘ESG’’ in each row with another term or 

phrase that more accurately describes 

the applicable ESG factors the Fund 

considers. The Fund also may replace 

the term ‘‘the Fund’’ in each row with 

an appropriate pronoun, such as ‘‘we’’ 

or ‘‘our.’’ 

3. The Fund’s disclosure for each row 

should be brief and limited to the 

information required by the row’s 

instruction. Funds should use lists and 

other text features designed to provide 

overviews. Electronic versions of the 

table should include a hyperlink to the 

location in the filing where the 

information is described in greater 

detail. 

4. Overview of the Fund’s [ESG] 

strategy. Provide a concise description 

in a few sentences of the ESG factor or 

factors that are the focus of the Fund’s 

strategy. The Fund must also include 

the list shown in the table above of 

common ESG strategies in a ‘‘check the 

box’’ style and indicate with a check 

mark or other feature all that apply. The 

Fund should only check the box for 

proxy voting or engagement with issuers 

(or both, as applicable) if it is a 

significant means of implementing the 

Fund’s ESG strategy, meaning that the 

Fund, as applicable, regularly and 

proactively votes proxies or engages 

with issuers on ESG issues to advance 

one or more particular ESG goals the 

fund has identified in advance. 

5. How the Fund incorporates [ESG] 

factors in its investment decisions. 

Summarize how the Fund incorporates 

ESG factors into its investment process 

for evaluating, selecting, or excluding 

investments. The summary must 

include, as applicable: 

a. An overview of how the Fund 

applies any inclusionary or 

exclusionary screen, including a brief 

explanation of the factors the screen 

applies, such as particular industries or 

business activities it seeks to include or 

exclude. For these purposes, an 

inclusionary screen is a method of 

selecting investments based on ESG 

criteria. Conversely, a fund applying an 

exclusionary screen starts with a given 

universe of investments and then 

excludes investment based on ESG 

criteria. If applicable, state what 

exceptions apply to the inclusionary or 

exclusionary screen. In addition, state 

the percentage of the portfolio, in terms 

of net asset value, to which the screen 

is applied, if less than 100%, excluding 

cash and cash equivalents held for cash 

management, and explain briefly why 

the screen applies to less than 100% of 

the portfolio. 

b. An overview of how the Fund uses 

an internal methodology, third-party 

data provider, such as a scoring or 

ratings provider, or a combination of 

both. 

c. The name of any index the Fund 

tracks and a brief description of the 

index and how the index utilizes ESG 

factors in determining its constituents. 

Information must be provided with 

respect to each applicable common ESG 

strategy (e.g., inclusionary and 

exclusionary screens) in a disaggregated 

manner if more than one applies. For 

example, inclusionary screening must 

be explained distinctly from 

exclusionary screening. Funds may use 

multiple rows or other text features to 


lotter on DSK11XQN23PROD with PROPOSALS3EP17JN22.026</GPH>

[ESG] Strategy Overview 

The Fund engages in the following to implement its [ESG] Strategy 

(check all that apply): 

□ Tracks an index 

□ Applies an inclusionary screen 

□ Applies an exclusionary screen 

□ Seeks to achieve a specific impact 

□ Proxy voting 

□ Engagement with issuers 

□ Other 
Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36753 

clearly identify the disclosure related to 

each applicable common ESG strategy. 

6. How the Fund incorporates [ESG] 

factors in its investment decisions. As 

applicable, provide an overview of any 

third-party ESG frameworks that the 

Fund follows as part of its investment 

process. 

7. How the Fund incorporates [ESG] 

factors in its investment decisions. An 

Impact Fund must provide an overview 

of the impact(s) the Fund is seeking to 

achieve and how the Fund is seeking to 

achieve the impact(s). The overview 

must include (i) how the Fund measures 

progress toward the specific impact, 

including the key performance 

indicators the Fund analyzes, (ii) the 

time horizon the Fund uses to analyze 

progress, and (iii) the relationship 

between the impact the Fund is seeking 

to achieve and financial return(s)). State 

that the Fund reports annually on its 

progress in achieving the impact(s) in 

the Fund’s annual report to 

shareholders or annual report on Form 

10–K as applicable. 

8. How the Fund votes proxies and/or 

engages with companies about [ESG] 

issues. The Fund must fill out this row 

regardless of whether the proxy voting 

or engagement boxes are checked. The 

Fund must describe briefly how the 

Fund engages or expects to engage with 

issuers on ESG issues (whether by 

voting proxies or otherwise). The Fund 

must state whether it has specific or 

supplemental policies and procedures 

that include one or more ESG 

considerations in voting proxies and, if 

so, state which considerations. If the 

Fund seeks to engage other than through 

shareholder voting, such as through 

meetings with or advocacy to 

management, the Fund must provide an 

overview of the objectives it seeks to 

achieve with the engagement strategy. If 

the Fund does not engage or expect to 

engage with issuers on ESG issues 

(whether by voting proxies or 

otherwise), the Fund must provide that 

disclosure in the row. 

9. Supplemental ESG disclosure. As 

applicable, the following items must be 

disclosed by Integration Funds or ESGFocused Funds to supplement the 

disclosures in the ESG Strategy 

Overview Table, to the extent not 

discussed in the Table. However, such 

disclosures do not need to precede other 

disclosures in Item 8.2. 

a. If the Fund is an Integration Fund, 

describe how the Fund incorporates 

ESG factors into its investment selection 

process, including: 

(1) The ESG factors that the Fund 

considers. 

(2) If the Fund considers the GHG 

emissions of its portfolio holdings as an 

ESG factor in its investment selection 

process, describe how the Fund 

considers the GHG emissions of its 

portfolio holdings, including a 

description of the methodology the 

Fund uses for this purpose. 

b. If the Fund is an ESG-Focused 

Fund, describe how the Fund 

incorporates ESG factors into its 

investment process, including: 

(1) The index methodology for any 

index the fund tracks, including any 

criteria or methodologies for selecting or 

excluding components of the index that 

are based on ESG factors. 

(2) Any internal methodology used 

and how that methodology incorporates 

ESG factors. 

(3) The scoring or ratings system of 

any third-party data provider, such as a 

scoring or ratings provider, used by the 

Fund or other third-party provider of 

ESG-related data about companies, 

including how the Fund evaluates the 

quality of such data. 

(4) The factors applied by any 

inclusionary or exclusionary screen, 

including any quantitative thresholds or 

qualitative factors used to determine a 

company’s industry classification or 

whether a company is engaged in a 

particular activity. 

(5) A description of any third-party 

ESG frameworks that the Fund follows 

as part of its investment process and 

how the framework applies to the Fund. 

(6) With regard to engagement, 

whether by voting proxies or otherwise, 

a description of specific objectives of 

such engagement, including the Fund’s 

time horizon for progressing on such 

objectives and any key performance 

indicators that the Fund uses to analyze 

or measure of the effectiveness of such 

engagement. 

10. If the Fund is an Impact Fund, 

where the Fund first describes its 

objective in the filing, disclose the ESG 

impact that the Fund seeks to generate 

with its investments. 

* * * * * 

Part B—Information Required in a 

Statement of Additional Information 

* * * * * 

Item 24. Financial Statements 

* * * * * 

Instructions 

* * * * * 

4. * * * 

* * * * * 

g. Management’s Discussion of Fund 

Performance. Disclose the following 

information: 

(1)(A) Discuss the factors that 

materially affected the Fund’s 

performance during the most recently 

completed fiscal year, including the 

relevant market conditions and the 

investment strategies and techniques 

used by the Fund. The information 

presented may include tables, charts, 

and other graphical depictions. 

(B) If the Fund is an Impact Fund as 

described in Item 8.2.e.(1)(C), 

summarize briefly the Fund’s progress 

on achieving the impacts described in 

response to Instruction 7 of Item 8.2.e in 

both qualitative and quantitative terms 

during the reporting period, and the key 

factors that materially affected the 

Fund’s ability to achieve the impact(s). 

(C) If the Fund is an ESG-Focused 

fund, as defined in Item 8.2.e.(1)(B), and 

indicates that it uses proxy voting as a 

significant means of implementing its 

ESG strategy in response to Item 

C.3(j)(iii) on Form N–CEN, disclose the 

percentage of ESG voting matters during 

the reporting period for which the Fund 

voted in furtherance of the initiative. 

The Fund may limit this disclosure to 

voting matters involving the ESG factors 

the Fund incorporates into its 

investment decisions. The Fund, other 

than a business development company, 

also must include a cross reference, and 

for electronic versions of the 

shareholder report include a hyperlink, 

to its most recent complete voting 

record filed on Form N–PX. 

(D) If the Fund is an ESG-Focused 

fund, as defined in Item 8.2.e.(1)(B), and 

indicates that it uses ESG engagement as 

a significant means of implementing its 

ESG strategy in response to Item 

C.3(j)(iii) on Form N–CEN, discuss the 

Fund’s progress on any key performance 

indicators. Disclose the number or 

percentage of issuers with which the 

Fund held ESG engagement meetings 

and total number of ESG engagement 

meetings. For this purpose, an ‘‘ESG 

engagement meeting’’ is a substantive 

discussion with management of an 

issuer advocating for one or more 

specific ESG goals to be accomplished 

over a given time period, where progress 

that is made toward meeting such goal 

is measurable, that is part of an ongoing 

dialogue with the issuer regarding this 

goal. If personnel of the Fund’s adviser 

hold an ESG engagement meeting with 

an issuer on behalf of multiple Funds 

advised by the adviser, each Fund for 

which the meeting is within its ESG 

strategy may count the ESG engagement 

meeting. 

(E) If the Fund is an ESG-Focused 

fund, as defined in Item 8.2.e.(1)(B), and 

indicates that it considers 

environmental factors in response to 

Item C.3(j)(ii) on Form N–CEN, except 

for an ESG-Focused fund that 

affirmatively states in the ‘‘ESG Strategy 

Overview’’ table required by Item 


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36754 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

4(a)(2)(ii)(B) that it does not consider 

the greenhouse gases (‘‘GHG’’) 

emissions of the portfolio companies in 

which it invests, disclose the following 

aggregated GHG emissions metrics of 

the portfolio for the reporting period: (1) 

Carbon Footprint and (2) Weighted 

Average Carbon Intensity. Calculate 

these metrics using the methodologies 

in the instructions below, and provide 

all related disclosures. 

Instructions 

1. Computation of Aggregated GHG 

Emissions 

(a) Carbon Footprint: Disclose the 

total GHG emissions associated with the 

Fund’s portfolio, normalized by the 

Fund’s net asset value and expressed in 

tons of carbon dioxide equivalent 

(‘‘CO2e’’) per million dollars invested in 

the Fund. Calculate the Portfolio Carbon 

Footprint as follows for each portfolio 

holding: 

(i) Calculate the enterprise value of 

the portfolio company. Enterprise value 

is the sum of the portfolio company’s 

equity value and the book value of its 

short- and long-term debt. 

(ii) Calculate the GHG emissions 

associated with each portfolio holding 

by dividing the current value of the 

holding by the enterprise value of the 

portfolio company. Then, multiply the 

resulting value by the portfolio 

company’s Scope 1 and Scope 2 

emissions. 

(iii) Add the GHG emissions 

associated with all portfolio holdings, 

then divide the resulting amount by the 

Fund’s net asset value to derive the 

Fund’s carbon footprint 

(b) Weighted Average Carbon 

Intensity: Disclose the Fund’s exposure 

to carbon-intensive companies, 

expressed in tons of CO2e per million 

dollars of the portfolio company’s total 

revenue, calculated as follows for each 

portfolio holding: 

(i) Calculate the portfolio weight of 

each portfolio holding by dividing the 

current value of the portfolio holding by 

the current net asset value of the Fund’s 

whole portfolio. 

(ii) Calculate the GHG emissions of 

each portfolio company by dividing the 

portfolio company’s Scope 1 and Scope 

2 emissions by the portfolio company’s 

total revenue. 

(iii) Multiply the portfolio weight of 

each portfolio holding by the GHG 

emissions of each portfolio company. 

The sum of these values for all portfolio 

holdings is the Fund’s weighted average 

carbon intensity. 

(c) Scope 3 Emissions: If the fund 

holds investments in portfolio 

companies that disclose their Scope 3 

emissions, disclose the Scope 3 

emissions associated with the Fund’s 

portfolio, to the extent Scope 3 

emissions are publicly available as 

provided in Instruction (d)(x) of this 

Item, using the Carbon Footprint 

methodology described in paragraph (a) 

of this Item. 

(i) Disclose Scope 3 emissions 

separately for each industry sector in 

which the Fund invests, as well as the 

percentage of the fund’s net asset value 

invested in each industry sector. 

(d) GHG Metric Calculation Data: To 

calculate the GHG emissions as 

discussed in paragraphs (a), (b) and (c) 

above, apply the following definitions, 

data inputs, and assumptions: 

(i) CO2e means the common unit of 

measurement to indicate the global 

warming potential of each greenhouse 

gas, expressed in terms of the global 

warming potential of one unit of carbon 

dioxide. 

(ii) Global warming potential means a 

factor describing the global warming 

impacts of different greenhouse gases. It 

is a measure of how much energy will 

be absorbed in the atmosphere over a 

specified period of time as a result of 

the emission of one ton of a greenhouse 

gas, relative to the emissions of one ton 

of carbon dioxide.

(iii) Greenhouse gases (‘‘GHG’’) means 

carbon dioxide; methane; nitrous oxide; 

nitrogen trifluoride; 

hydrofluorocarbons; perfluorocarbons; 

and sulfur hexafluoride. 

(iv) GHG emissions means direct and 

indirect emissions of greenhouse gases 

expressed in metric tons of CO2e, of 

which: 

(A) Direct emissions are GHG 

emissions from sources that are owned 

or controlled by a portfolio company. 

(B) Indirect emissions are GHG 

emissions that result from the activities 

of the portfolio company, but occur at 

sources not owned or controlled by the 

portfolio company. 

(v) Scope 1 emissions are direct GHG 

emissions from operations that are 

owned or controlled by a portfolio 

company. 

(vi) Scope 2 emissions are indirect 

GHG emissions from the generation of 

purchased or acquired electricity, steam, 

heat, or cooling that is consumed by 

operations owned or controlled by a 

portfolio company. 

(vii) Scope 3 emissions are all indirect 

GHG emissions not otherwise included 

in a portfolio company’s Scope 2 

emissions, which occur in the upstream 

and downstream activities of a portfolio 

company’s value chain. 

(viii) Value chain means the upstream 

and downstream activities related to a 

portfolio company’s operations. 

Upstream activities in connection with 

a value chain may include activities by 

a party other than the portfolio company 

that relate to the initial stages of a 

portfolio company’s production of a 

good or service (e.g., materials sourcing, 

materials processing, and supplier 

activities). Downstream activities in 


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current value of portfolio holding 

portfolio company's enterprise value 

X portfolio company's scope 1 and scope 

2 emissions 

current portfolio net asset value 

current value of portfolio holding 

X 

current portfolio value 

portfolio company's scope 1 and scope 

2 emissions 

portfolio company's total revenue ($M) 
Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36755 

connection with a value chain may 

include activities by a party other than 

the portfolio company that relate to 

processing materials into a finished 

product and delivering it or providing a 

service to the end user (e.g., 

transportation and distribution, 

processing of sold products, use of sold 

products, end of life treatment of sold 

products, and investments). 

(ix) A portfolio company or portfolio 

holding means a Fund’s investment in, 

including an indirect investment 

through a derivatives instrument: 

(A) An issuer that is engaged in or 

operates a business or activity that 

generates GHG emissions; or 

(B) An investment company, or entity 

that would be an investment company 

under section 3(a) of the Investment 

Company Act but for the exceptions to 

that definition provided for in sections 

3(c)(1) and 3(c)(7), that invests in issuers 

described in paragraph A of this 

subsection, except for an investment in 

reliance on § 270. 12d1–1. 

(x) Use the values necessary to 

calculate the portfolio company’s equity 

value, total debt, and total revenue: (1) 

from the portfolio company’s most 

recent public report required to be filed 

with the Commission pursuant to the 

Exchange Act or the Securities Act 

(‘‘regulatory report’’) containing such 

information) or, (2) absent a regulatory 

report, based on information provided 

by the portfolio company. If a portfolio 

company’s total revenue is reported in 

currency other than U.S. dollars, 

convert the reported revenue into US 

dollars using the exchange rate as of the 

date of the relevant regulatory report 

providing the company’s revenue. 

(xi) Sources of portfolio company 

emissions data. 

(A) If the portfolio company reports 

Scope 1, Scope 2, and Scope 3 

emissions in a regulatory report, the 

Fund must use the Scope 1, Scope 2, or 

Scope 3 emissions in the portfolio 

company’s most recent regulatory 

report. 

(B) If the portfolio company does not 

report its Scope 1, Scope 2, and Scope 

3 emissions as described in subsection 

1 of this instruction, the Fund must use 

Scope 1, Scope 2, or Scope 3 emissions 

that are publicly provided by the 

portfolio company. 

(C) If the portfolio company does not 

report or otherwise publicly provide its 

Scope 1 and Scope 2 emissions, use a 

good faith estimate of the portfolio 

company’s Scope 1 and Scope 2 

emissions. Discuss briefly how the Fund 

calculates such estimates, including the 

sources of data for determining such 

estimates, and the percentage of the 

Fund’s aggregated GHG emissions for 

which the Fund used estimates rather 

than reported emissions. 

(xii) Use the value of each portfolio 

holding and the net asset value of the 

portfolio as of the end of the Fund’s 

most recently completed fiscal year. 

(xiii) If a Fund obtains exposure to a 

portfolio company by entering into a 

derivatives instrument, the derivatives 

instrument will be treated as an 

equivalent position in the securities of 

the portfolio company that are 

referenced in the derivatives 

instrument. A derivatives instrument for 

this purpose means any swap, securitybased swap, futures contract, forward 

contract, option, any combination of the 

foregoing, or any similar instrument. 

* * * * * 

10. Business Development 

Companies. 

a. Every annual report filed under the 

Exchange Act by a business 

development company must contain the 

information required by Instruction 4.b, 

and, as applicable, Instructions 

4.g(1)(B)–(E) and 4.h to this Item. 

b. The requirement to respond to 

Instructions 4.g(1)(C)–(E) is predicated 

on responses to certain disclosures 

required by Item C.3(j) of Form N–CEN. 

For purposes of this Item, provide the 

information required by Instructions 

4.g(1)(C)–(E) to the extent that a 

business development company would 

have supplied the predicate responses 

to Item C.3(j) were it required to file 

Form N–CEN. 

c. Any information provided in 

response to Instructions 4.g(1)(B)–(E) to 

this Item that appears in a business 

development company’s annual report 

must be included with the disclosure 

required by Item 7 of Form 10–K 

(Management’s Discussion and Analysis 

of Financial Condition and Results of 

Operations). 

d. Every annual report filed on Form 

10–K that contains the information 

required by Instruction 4.g(1)(E) to this 

Item also must contain the information 

required by Item 7 of Form N–CSR 

(Disclosure of Greenhouse Gas (GHG) 

Emissions Methodologies and 

Assumptions). 

* * * * * 

■ 14. Amend Form N–8B–2 (referenced 

in § 274.12) by: 

■ a. In the heading of ‘‘2. Preparation 

and filing of Registration Statement’’ 

under the General Instructions, adding a 

new instruction (l); and 

■ b. Revising the instructions to II.11. 

The addition and revisions read as 

follows: 

Note: The text of Form N–8B–2 does not, 

and this amendment will not, appear in the 

Code of Federal Regulations. 

FORM N–8B–2 

* * * * * 

General Instructions for Form N–8B–2 

* * * * * 

2. * * * 

(l). Interactive Data 

(1) An Interactive Data File as defined 

in Rule 11 of Regulation S–T [17 CFR 

232.11] is required to be submitted to 

the Commission in the manner provided 

by Rule 405 of Regulation S–T [17 CFR 

232.405] for any registration statement 

on Form N–8B–2 that includes 

information provided in response to 

Item 11 pursuant to Instruction 2. The 

Interactive Data File must be submitted 

with the filing to which it relates on the 

date such filing becomes effective. 

(2) All interactive data must be 

submitted in accordance with the 

specifications in the EDGAR Filer 

Manual. 

* * * * * 

General Description of the Trust and 

Securities of the Trust 

* * * * * 

11. * * * 

Instructions 

1. The registrant need only disclose 

information with respect to an issuer 

that derived more than 15% of its gross 

revenues from the business of a broker, 

a dealer, an underwriter, or an 

investment adviser during its most 

recent fiscal year. If the registrant has 

issued more than one class or series of 

securities, the requested information 

must be disclosed for the class or series 

that has securities that are being 

registered. 

2. If one or more environmental, 

social, or governance (‘‘E,’’ ‘‘S,’’ or ‘‘G,’’ 

and collectively, ‘‘ESG’’) factors are 

used to select the portfolio securities, 

describe briefly how such factors are 

incorporated into the investment 

selection process, including which ESG 

factors are considered. 

* * * * * 

■ 15. Amend Form N–CEN (referenced 

in §§ 249.330 and 274.101) by: 

■ a. Redesignating Items C.3.b.i. through 

C.3.b.iv. as Items C.3.b.ii. through 

C.3.b.v., and 

■ b. Adding new Items C.3.b.i. and C.3.j. 

The additions read as follows: 

Note: The text of Form N–CEN does not, 

and this amendment will not, appear in the 

Code of Federal Regulations. 

FORM N–CEN 

* * * * * 


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Part C: Additional Questions for 

Management Investment Companies 

Item C.3. * * * 

b. * * * 

i. Full name and LEI, if any, or 

provide and describe other identifying 

number of index: llll 

* * * * * 

j. Funds that incorporate 

Environmental, Social and/or 

Governance (‘‘E,’’ ‘‘S,’’ or ‘‘G,’’ and 

collectively, ‘‘ESG’’) factors: ll 

i. Does the Fund provide the 

disclosure required by Item 4(a)(2)(ii) of 

Form N–1A or Item 8.2.e.(2)(B) of Form 

N–2? [Y/N] If yes, 

1. Is the Fund an ‘‘Integration Fund’’ 

as described in Item 4(a)(2)(i)(A) of 

Form N–1A or Item 8.2.(e)(1)(A) (A)of 

Form N–2? [Y/N] 

2. Is the Fund an ‘‘ESG-Focused 

Fund’’ as described in Item 4(a)(2)(i)(B) 

of Form N–1A or Item 8.2.e.(1)(B) of 

Form N–2? [Y/N] If yes, 

A. Is the Fund an ‘‘Impact Fund’’ as 

described in Item 4(a)(2)(i)(C) of Form 

N–1A or Item 8.2.e.(1)(C) of Form N–2? 

[Y/N] 

ii. Which of the following factors does 

the Fund consider: 

1. Environmental factors? [Y/N] 

2. Social factors? [Y/N] 

3. Governance factors? [Y/N] 

iii. Which of the following does the 

Fund engage in to implement its ESG 

strategy: 

1. Tracks an index? [Y/N] 

2. Applies an inclusionary screen? [Y/N] 

3. Applies an exclusionary screen? [Y/ 

N] 

4. Proxy voting? [Y/N] 

5. Engagement with issuers? [Y/N] 

6. Other? [Y/N] 

iv. Does the Fund consider ESG 

information or scores from ESG 

consultant(s) or other ESG service 

provider(s)? [Y/N] If yes, 

1. Full name(s) and LEI, if any, or 

provide and describe other identifying 

number of ESG consultant(s) or other 

ESG service provider(s): llll 

2. Is the ESG consultant(s) or other 

service provider(s) an affiliated person 

of the Fund? [Y/N] 

v. Does the Fund follow any thirdparty ESG framework(s)? [Y/N] If yes, 

1. Name(s) of the framework(s): 

llll 

* * * * * 

■ 16. Amend Form N–CSR (referenced 

in §§ 249.331 and 274.128) by: 

■ a. Revising Instruction C.4; 

■ b. Revising the second sentence of 

Item 2.(c); 

■ c. Revising Item 2.(f)(1); 

■ d. Redesignating Items 7 through 13 as 

Items 8 through 14; 

■ e. Adding a new Item 7; and 

■ f. In Certifications, revising the 

introductory text of Instruction to 

paragraph (a)(2); and 

■ g. Revising the heading ‘‘Instructions 

to Item 13’’ to read ‘‘Instructions to Item 

14.’’. 

The revisions and addition read as 

follows: 

Note: The text of Form N–CSR does not, 

and this amendment will not, appear in the 

Code of Federal Regulations. 

FORM N–CSR 

* * * * * 

General Instructions 

* * * * * 

C. * * * 

4. Interactive Data File. An Interactive 

Data File as defined in Rule 11 of 

Regulation S–T [17 CFR 232.11] is 

required to be submitted to the 

Commission in the manner provided by 

Rule 405 of Regulation S–T [17 CFR 

232.405] by a management investment 

company registered under the 

Investment Company Act of 1940 (15 

U.S.C. 80a et seq.) to the extent required 

by Rule 405 of Regulation S–T for 

information provided in response to, as 

applicable: 

(a) Item 27(b)(7)(i)(B)–(E) of Form N– 

1A included in any annual report filed 

on this Form; 

(b) Items 3.1, 4.3, 8.2.b, 8.2.d, 8.2.e, 

8.3.a, 8.3.b, 8.5.b, 8.5.c, 8.5.e, 10.1.a–d, 

10.2.a–c, 10.2.e, 10.3, and 10.5 of Form 

N–2 included in any annual report filed 

on this Form by a Registrant that is 

filing a registration statement pursuant 

to General Instruction A.2 of Form N– 

2; 

(c) Instructions 4.g.(1)(B)–(E) to Item 

24 of Form N–2 included in any annual 

report filed on this Form; and 

(d) Item 7 of this Form. 

* * * * * 

Item 2. * * * 

(c) * * * The registrant must file a 

copy of any such amendment as an 

exhibit pursuant to Item 14(a)(1), unless 

the registrant has elected to satisfy 

paragraph (f) of this Item by posting its 

code of ethics on its website pursuant to 

paragraph (f)(2) of this Item, or by 

undertaking to provide its code of ethics 

to any person without charge, upon 

request, pursuant to paragraph (f)(3) of 

this Item. 

* * * * * 

(f) * * * 

(1) File with the Commission, 

pursuant to Item 14(a)(1), a copy of its 

code of ethics that applies to the 

registrant’s principal executive officer, 

principal financial officer, principal 

accounting officer or controller, or 

persons performing similar functions, as 

an exhibit to its annual report on this 

Form N–CSR; 

* * * * * 

Item 7. Disclosure of Greenhouse Gas 

(GHG) Emissions Methodologies and 

Assumptions 

If a registrant is required to disclose 

the aggregated GHG emissions of its 

portfolio in its report transmitted to 

stockholders pursuant to Rule 30e-1 

under the Act, the registrant must 

provide descriptions of any assumptions 

and methodologies it applied in 

calculating the portfolio’s GHG 

emissions, any limitations associated 

with the registrant’s assumptions and 

methodologies, and explanations of any 

good faith estimates of GHG emissions 

the registrant was required to make in 

response to Item 27(b)(7)(i)(E) of Form 

N–1A or Instruction 4.g.(1)(E) to Item 24 

of Form N–2. 

* * * * * 

Certifications 

* * * * * 

Instruction to Paragraph (a)(2) 

Until the date that the registrant has 

filed its first report on Form N–PORT 

(17 CFR 270.150), in the certification 

required by Item 14(a)(2), the 

registrant’s certifying officers must 

certify that they have disclosed in the 

report any change in the registrant’s 

internal control over financial reporting 

that occurred during the registrant’s 

most recent fiscal quarter that has 

materially affected, or is reasonably 

likely to materially affect, the 

registrant’s internal control over 

financial reporting. 

* * * * * 

Instructions to Item 14 

* * * * * 

PART 279—FORMS PRESCRIBED 

UNDER THE INVESTMENT ADVISERS 

ACT OF 1940 

■ 17. The authority citation for part 279 

continues to read as follows: 

Authority: The Investment Advisers Act of 

1940, 15 U.S.C. 80b–1, et seq., Pub. L. 111– 

203, 124 Stat. 1376. 

■ 18. Form ADV (referenced in § 279.1) 

is amended by: 

■ a. In Part 1A, Item 5, adding 

paragraphs K.(5), K.(6), and M.; 

■ b. In Part 1A, Item 6, adding 

paragraph A.(15); 

■ c. In Part 1A, Item 7, adding paragraph 

A.(17); 

■ d. In Part 1A, Schedule D, adding 

Section 6.A.(15); 


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■ e. In Part 1A Schedule D, adding 

7.A.5.(q); 

■ f. In Part 1A Schedule D, adding 

Section 7.B.(1)A.29.; 

■ g. In Part 2A Item 8, adding paragraph 

D.; 

■ h. In Part 2A, adding Item 10.C.12.; 

■ i. In Part 2A, revising 17.A.; 

■ j. In Part 2A Appendix 1, revising 

Items 4.A, Items 6A. and C. 

The revisions and additions read as 

follows: 

Note: The text of Form ADV does not, and 

the amendments will not, appear in the Code 

of Federal Regulations. 

FORM ADV (Paper Version) 

* * * * * 

PART 1A 

* * * * * 

Item 5. * * * 

* * * * * 

K. Separately Managed Account 

Clients 

* * * * * 

BILLING CODE 8011–01–P 


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(5) Do you consider any Environmental, Social or Governance ("E," "S," or "G," and 

collectively, "ESG") factors (i) as part of one or more significant investment strategies or 

methods of analysis in the advisory services you provide to your separately managed account 

clients, including in your selection of other investment advisers if applicable, and/or (ii) as part 

of your advisory services when requested by your separately managed account clients? 

□ Yes □ No 

( 6) If you answered "Yes" to Item 5 .K( 5), for those advisory services: 

a. Do you consider one or more ESG factors alongside other, non-ESG factors in 

your investment advice, but such ESG factors are generally no more 

significant than other factors in advising your clients with respect to 

investments, such that ESG factors may not be determinative in providing 

advice with respect to any particular investment ("integration")? 

□ Yes □ No 

b. Do you focus on ESG factors by using them as a significant or main 

consideration in advising your clients with respect to investments or in your 

engagement strategy with the companies in which your separately managed 

account clients invest (ESG-"focused")? 

□ Yes □ No 

c. If you answered "Yes" to (6)b., do you seek to achieve a specific ESG impact 

or impacts (ESG "impact")? 

□ Yes □ No 
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(Select all that apply. For example, if you have some significant investment 

strategies that are integration, others that are ESG-focused, and others that are ESGfocused and seek to achieve a measurable ESG impact, select "Yes" to a., b., and c.). 

d. Which of the following factors do you consider for your separately managed 

account clients described in Item 5.K(S): 

i. Environmental factors? □ Yes □ No 

11. Social factors? □ Yes □ No 

111. Governance factors? □ Yes □ No 

(Select all that apply) 

* * * * * 

M. Third-Party ESG Framework(s): 

(1) Do you follow any third-party ESG framework(s) in connection with your advisory 

services? 

□ Yes □ No 

If"Yes," state the name(s) of the framework(s): 

free text boxes] 

Item 6. * * * 

* * * * * 

A * * * 

________ [multiple 

□ (15) ESG consultant or other ESG service provider 

* * * * * 

Item 7. * * * 
Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36759 


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* * * * * 

A * * * 

□ (17) ESG consultant or other ESG service provider 

* * * * * 

Schedule D 

* * * * * 

Section 6.A. * * * 

* * * * * 

□ (15) ESG consultant or other ESG service provider 

* * * * * 

Section 7.A. * * * 

* * * * * 

5. * * * 

□ (q) ESG consultant or other ESG service provider 

Section 7.B.(1) * * * 

* * * * * 

A.* * * 

* * * * * 

29. (a) Do you consider any ESG factors as part of one or more significant investment 

strategies or methods of analysis in the advisory services you provide to this private 

fund? 

□ Yes □ No 
36760 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

BILLING CODE 8011–01–C 

* * * * * 

Uniform Application for Investment 

Adviser Registration 

Part 2: Uniform Requirements for the 

Investment Adviser Brochure and 

Brochure Supplements 

* * * * * 

Part 2A of Form ADV: Firm Brochure 

* * * * * 

Item 8. Methods of Analysis, Investment 

Strategies and Risk of Loss 

* * * * * 


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(b) If you answered "Yes" to 29.(a), for the significant investment strategy or method 

of analysis for which you consider ESG factors for this private fund: 

(1) Do you consider one or more ESG factors alongside other, non-ESG factors in 

your investment advice, but such ESG factors are generally no more 

significant than other factors in advising the fund with respect to investments, 

such that ESG factors may not be determinative in providing advice with 

respect to any particular investment ("integration")? 

□ Yes □ No 

(2) Do you focus on ESG factors by using them as a significant or main 

consideration in advising the fund with respect to investments or in your 

engagement strategy with the companies in which the fund invests (ESG 

"focused")? 

□ Yes □ No 

(3) If you answered "Yes" to 29.(b)(2), do you seek to achieve a specific ESG 

impact or impacts (ESG "impact")? 

□ Yes □ No 

(4) Which of the following factors do you consider when providing advisory 

services to this private fund: 

a. Environmental factors? □ Yes □ No 

b. Social factors? □ Yes □ No 

C. Governance factors? □ Yes □ No 

(select all that apply) 
Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36761 

D. For each significant investment 

strategy or method of analysis you use 

for which you consider any ESG factors, 

provide a description of the ESG factor 

or factors you consider, and how you 

incorporate these factors when advising 

your clients with respect to investments, 

including in the selection or 

recommendation of other investment 

advisers, and whether and how you 

incorporate E, S, or G factors, or a 

combination of ESG factors. This must 

include, but not be limited to, an 

explanation of whether and how you: 

1. consider one or more ESG factors 

alongside other, non-ESG factors in your 

investment advice, but such ESG factors 

are generally no more significant than 

other factors in advising your clients 

with respect to investments, such that 

ESG factors may not be determinative in 

providing advice with respect to any 

particular investment (‘‘integration’’); or 

2. focus on one or more ESG factors 

by using them as a significant or main 

consideration in advising your clients 

with respect to investments or in your 

engagement strategy with the companies 

in which your clients invest (ESG- 

‘‘focused’’). ESG ‘‘impact’’ strategies or 

methods of analysis are those ESGfocused strategies or methods of 

analysis that seek to achieve a specific 

ESG impact or impacts. For any ESG 

impact strategy or methodology, you 

must provide an overview of the 

impact(s) you are seeking to achieve and 

how you are seeking to achieve the 

impact(s) (including how you measure 

progress toward the stated impact, 

disclosing the key performance 

indicators you analyze, the time horizon 

you use to analyze progress, and the 

relationship between the impact you are 

seeking to achieve and financial 

return(s)). 

If you use criteria or a methodology 

for evaluating, selecting, or excluding 

investments in your significant 

investment strategy or method of 

analysis based on the consideration of 

ESG factors, describe that criterion and/ 

or methodology and how you use it for 

each applicable significant investment 

strategy or method of analysis. This 

must include, but is not limited to, a 

description of whether (and how) you 

use any of the following: 

1. an internal methodology, a thirdparty criterion or methodology such as 

a scoring provider or framework, or a 

combination of both, including an 

explanation of how the adviser 

evaluates the quality of relevant thirdparty data; 

2. an inclusionary or exclusionary 

screen, including an explanation of the 

factors the screen applies, such as 

particular industries or business 

activities it seeks to include or exclude 

and if applicable, what exceptions apply 

to the inclusionary or exclusionary 

screen; and/or 

3. an index, including the name of the 

index and a description of the index and 

how the index utilizes ESG factors in 

determining its constituents.’’ 

Note: If you utilize or follow a third-party 

ESG framework, criterion, or index, you may 

include a hyperlink to any such framework, 

criterion, or index in your response to this 

Item. 

* * * * * 

Item 10. Other Financial Industry 

Activities and Affiliations 

C. * * * 

* * * * * 

12. ESG consultant or other ESG 

service provider. 

* * * * * 

Item 17. Voting Client Securities 

A. If you have, or will accept, 

authority to vote client securities, 

describe briefly your voting policies and 

procedures, including those adopted 

pursuant to SEC rule 206(4)–6. If you 

have specific voting policies or 

procedures to include one or more ESG 

considerations when voting client 

securities, describe which ESG factors 

you consider and how you consider 

them. Describe whether (and, if so, how) 

your clients can direct your vote in a 

particular solicitation. Describe how 

you address conflicts of interest 

between you and your clients with 

respect to voting their securities. 

Describe how clients may obtain 

information from you about how you 

voted their securities. Explain to clients 

that they may obtain a copy of your 

proxy voting policies and procedures 

upon request. 

* * * * * 

Part 2A Appendix 1 of Form ADV: 

Wrap Fee Program Brochure 

* * * * * 

Item 4. Services, Fees and 

Compensation 

A. Describe the services, including the 

types of portfolio management services, 

provided under each program. Indicate 

the wrap fee charged for each program 

or, if fees vary according to a schedule, 

provide your fee schedule. Indicate 

whether fees are negotiable and identify 

the portion of the total fee, or the range 

of fees, paid to portfolio managers. If 

you consider Environmental, Social, or 

Governance (‘‘ESG’’) factors under your 

programs, provide a description of the 

factors you consider, and how you 

incorporate them under each program. 

* * * * * 

Item 6. Portfolio Manager Selection and 

Evaluation 

A. * * * 

4. If you consider ESG factors when 

selecting, reviewing, or recommending 

portfolio managers as described in this 

Item, describe the ESG factors you 

consider and how you consider them. 

Your description of those factors must 

include: 

(i) a description of any criteria or 

methodology you use to assess portfolio 

managers’ applications of the relevant 

ESG factors into their portfolio 

management, including any industry or 

other standards for presenting the 

achievement of ESG impacts and/or 

third-party ESG frameworks, and any 

internal criteria or methodology; 

(ii) an explanation of whether you 

review, or whether a third-party 

reviews, portfolio managers’ 

applications of the relevant ESG factors 

described above. If so, describe the 

nature of the review and the name of 

any third party conducting the review. 

(iii) if applicable, an explanation that 

neither you nor a third-party assesses 

portfolio managers’ application of the 

relevant ESG factors into their portfolio 

management, and/or that the portfolio 

managers’ application of the relevant 

ESG factors may not be calculated, 

compiled, assessed, or presented on a 

uniform and consistent basis. 

* * * * * 

C. If you, or any of your supervised 

persons covered under your investment 

adviser registration, act as a portfolio 

manager for a wrap fee program 

described in the wrap fee program 

brochure, respond to Items 4.B, 4.C, 4.D 

(Advisory Business), 6 (PerformanceBased Fees and Side-By-Side 

Management), 8.A and 8.D (Methods of 

Analysis, Investment Strategies and Risk 

of Loss), and 17 (Voting Client 

Securities) of Part 2A of Form ADV. 

By the Commission. 

Dated: May 25, 2022. 

Vanessa A. Countryman, 

Secretary. 

[FR Doc. 2022–11718 Filed 6–16–22; 8:45 am] 

BILLING CODE 8011–01–P 


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