MFA Submits Comment Letter to the SEC in Response to Proposed ESG Diclosure for Advisers

On August 16, 2022, MFA submitted a comment letter to the U.S. Securities and Exchange Commission (SEC) in response to its proposed rule to enhance disclosures of ESG investment practices by investment advisers. The letter emphasizes that the proposed disclosure framework is overly broad and will capture many, if not all, investment strategies under the proposed ESG framework.

MFA raises that requiring advisers to provide disclosures around how they incorporate ESG disclosuresregardless of whether it’s in the context of an ESG strategycould impede on the Commission’s goal to counter greenwashing by creating investor confusion around the importance of certain ESG factors. From the letter:

“Requiring an adviser to provide extensive disclosures concerning how it integrates ESG factors—no matter how incidental the consideration may be or whether the adviser considers those factors as part of a strategy that is marketed to investors as affirmatively seeking ESG-oriented outcomes—will result in undue emphasis on an otherwise immaterial strategy (or aspect thereof).”

This is likely to lead to greater investor confusion and frustration as the term “ESG” becomes overused and hollow. We believe this result would be contrary to the Commission’s stated goal of reducing the risk of “greenwashing” by creating a misleading impression of the importance of ESG factors to an adviser’s strategy, fund, or investment process.”

MFA underscores that investors already have the ability to contract for additional disclosures, including around ESG strategies. From the letter:

“[T]he type of sophisticated investors investing in private funds have the ability to contract for additional specific disclosures and reporting based on their particular needs and preferences (and, in fact, regularly seek such additional information concerning ESG strategies, execution and performance through their own due diligence processes).”

MFA stresses that the proposed rule’s disclosure regime will likely provide no commensurate benefits to investors and likely limit the ESG approaches and strategies available to investors. From the letter:

“As such, MFA is concerned that without any commensurate benefit to investors and the private funds market more generally, the burdens and costs imposed by the Proposal will limit the ESG approaches and strategies available to investors by discouraging innovation with respect to ESG investing.”