Client Success Stories

Don’t just take our word for it, hear how our clients solved their problems with AQMetrics

Success Stories

Join the AQMetrics team

At AQMetrics, we're constantly seeking exceptional talent to join our team.


Latest News and Regulatory Insights

Expertly crafted resources from AQMetrics for our partners and customers


ESG: A Deep Dive into the SEC Proposed Amendments



As global regulators are intensifying their focus on “greenwashing”, the absence of standardisation or a common disclosure framework frustrates investors and their managers.Across the industry, there is a well-recognisedlack of consistent and comparable data which may lead to potential greenwashing and is making the regulators’ and managers’ jobs ever more challenging and burdensome regarding regulatory data management. As a result, ESG disclosure requirements have been legislated in Europe and proposed in the USA. Over the month of June, AQMetrics is releasing a series of blogs examining how the industry is experiencing the dawn of de facto regulation of ESG investing, and therefore needs a standard data management solution to stay compliant with emerging regulatory change, in the most efficient and cost-effective way possible.


ESG investing & disclosure requirements

Investor interest and inflows in capital towards ESG strategies have grown incredibly in recent years. In tandem, we have seen much asset management activity in the creation and marketing of ESG products. Definitions of ESG vary widely and there are significant differences in the data and criteria used as part of ESG strategies. To date, there has been a lack of disclosure requirements and no common disclosure framework for ESG investing. According to the U.S. Securities and Exchange Commission (“SEC”), this makes it harder for investors to understand which investments or investment policies are associated with a particular ESG strategy and may lead to exaggeration of a fund’s actual consideration of ESG factors.


The SEC proposed amendments to ESG disclosure requirements

As a result on 25 May 2022, the SEC proposed amendments to existing rules and reporting forms designed to promote consistent, comparable, and reliable information for investors concerning the incorporation of environmental, social, and governance factors in investment funds and strategies. If adopted, these proposed amendments modify disclosure requirements that apply to registered investment advisers, certain advisers exempt from registration, investment companies and business development companies registered under the Investment Company Act of 1940. The specific data requirements depend on the extent to which a fund considers ESG factors in its investment processes. The SEC has proposed a new fund taxonomy consisting of three categories of ESG funds and accompanying disclosure requirements.

  1. ESG Integration Funds are defined as funds that consider one or more ESG factors and other non-ESG factors in decision-making.
  2. ESG-Focused Funds use one or more ESG factors as a significant or main consideration in selecting investments. The strategy may involve inter alia exclusionary and inclusionary screening; tracking an ESG index; proxy voting for ESG issues and engagement with issuers.
  3. As indicated in its name an Impact Fund seeks to achieve a specific ESG impact.


Funds are required to provide an overview of their ESG strategy and to set out how the fund incorporates ESG factors in its investment decision-making. Furthermore, an impact fund must disclose the relationship between the impact sought and the financial return, the KPIs (key performance indicators) of an impact, and the time horizons used to check for progress.Nuanced actions to prevent proxy washing and engagement washing are of note. According to the proposal, funds must describe briefly how it engages with firms or votes its proxies on ESG issues. The SEC also says“employees (should) 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.” Funds that consider environmental factors have to disclose carbon footprints; and weighted average carbon intensity (WACI). Carbon footprint is defined as [(the current value of the portfolio holding in an instrument / the instrument’s enterprise value) * total GHG emissions]/ the portfolio’s NAV. Scope 3 emissions are not included. The WACI is defined as (current value of a holding/current NAV) * (scope 1 and 2 emissions)/ total revenue in the corporation pertaining to the holding).


Why accurate ESG disclosure matters to investors

The proposed rule and form amendments are designed to provide consistent standards for ESG disclosures. In theory, this will allow investors to make more informed decisions as they compare various ESG investments. The SEC proposal’s framework for ESG-related strategy disclosure should allow investors 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.
In our next blog, we will look at what the proposed changes to Form ADV mean for the industry and why a standardized approach to data management for regulatory forms is the solution much needed by the industry.