Dive Brief:
- The Securities and Exchange Commission has abandoned the rulemaking process for regulations requiring enhanced disclosures for ESG and similarly labeled funds and altering the shareholder proposal and resubmission process, the agency announced in an agenda update Thursday.
- The two rules were among 14 Biden-era agency proposals the SEC withdrew last week. The agency also stopped defending its climate risk disclosure rule in court this spring, as intervening states have looked to take up the case and continue the rule’s defense in court.
- The ESG disclosures rule was considered among the most endangered Biden-era regulations related to climate and environmental, social and governance policies under President Donald Trump. Other regulations on the list have also faced pushback, including a Department of Labor rule allowing retirement plan managers to consider ESG factors, a rule that DOL recently announced it would rescind and remake.
Dive Insight:
The SEC first proposed the rule to require enhanced disclosures from investment advisers and companies on ESG practices in May 2022, and Congressional Democrats had urged the SEC to finalize its anti-greenwashing rule for ESG funds under the prior administration. The final rule was initially expected in April 2024, pushed to October 2024 and ultimately went unreleased before the change in administration.
The rule would have required investment advisers and companies to make additional disclosures about their ESG strategies and practices in their prospectuses, annual reports and brochures; implemented a comparable disclosure approach for investors to easily compare ESG funds; and required environmentally-focused funds to disclose their portfolio greenhouse gas emissions, according to an agency fact sheet.
Congressional Democrats had pressed former SEC Chair Gary Gensler to finalize the rule as an anti-greenwashing complement to the agency’s amendments to the Investment Company Act’s Names Rule. Enforcement for the Names Rule — which requires funds with an objective like “sustainability” in their name to invest 80% of its assets towards that goal — has since been pushed back to June 2026 and December 2026 for companies with more than $1 billion in net assets and companies whose assets fall under that threshold, respectively.
Following the change in federal leadership, House Republicans asked the SEC to rescind the ESG rule, along with the Names Rule, among a list of requested Biden-era regulatory recissions. Other rules that appeared on the list were also rescinded June 12, including the SEC’s cybersecurity risk management, strategy and governance disclosures rule.
The agency proposed its update to the shareholder proposal and resubmission process in July 2022, which would have replaced a rule from the prior Trump administration’s SEC that raised thresholds for stocks required to submit a proposal to company boards among other changes. A judge in the federal district court for Washington, D.C. recently dismissed a lawsuit from responsible investing groups challenging the Trump administration’s 2020 rule.
Gensler’s SEC had proposed revising bases by which a company board could have a shareholder proposal excluded based on the reason that a submission had been substantially implemented, is duplicative or is being resubmitted, according to a fact sheet on shareholder proposals.
With the lawsuit challenging those higher thresholds dismissed and the rulemaking process to alter the shareholder process withdrawn, the SEC appears cleared to return to its 2020 position on shareholder proposal process.
