'If it’s easy to tell if milk is fat-free by just looking at the nutrition label, it might be time to make it easier to tell if green or sustainable funds are really what they say they are,' said SEC Chairman Gary Gensler.
“‘If it’s easy to tell if milk is fat-free by just looking at the nutrition label, it might be time to make it easier to tell if green or sustainable funds are really what they say they are.’”
The mutual and exchange-traded fund category known as Environmental, Social and Governance, or ESG, is often under fire for perceived infractions stretching from lingering exposure to oil and gas drillers USO, +6.43%, to alignment with broader indexes that might include big holding companies with prisons in their portfolios, though virtually hidden from investors. If an ESG fund is also promising “growth,” it may include a tech-focused VGT, -1.92% or otherwise diversified inventory of stocks.
“When I think about these questions, I’m reminded of walking down the aisle of a grocery store and seeing a product like fat-free milk,” Gensler said. “In that case, you can see objective figures, like grams of fat, which are detailed on a nutrition label. Investors should be able to drill down and see the ingredients underlying these funds.”
For starters, there’s no industry consensus on what environmental, social and governance investing includes, Gensler says in the Tuesday video. He mused whether or not firms are adhering to a 1940 law that requires fund names to match what they invest in.And Gensler noted that unlike many high-yield bond funds, ESG offerings don’t publish debt ratings that back up their labels.