The SEC’s New ESG Disclosures Regulation: What Wealth Advisers Need to Know
Thursday, September 7, 2023
September 2023
The SEC’s New ESG Disclosures Regulation: What Wealth Advisers Need to Know

Preparing for ESG disclosures can be stressful — but it doesn’t have to be with some thoughtful planning

By Alex Acosta, chief compliance officer at Ethic

Key Points

  • The SEC’s ESG Disclosures for Investment Advisers regulation will require registered wealth advisers (among other individuals and entities) to adopt a standardized reporting structure with comparable disclosures of ESG-related information. 
  • The rule will also require these individuals and entities to issue specific disclosure requirements regarding ESG strategies in fund prospectuses, annual reports, and adviser brochures.
  • The amount of disclosure required will depend on how central ESG factors are to a fund’s strategy.
  • Preparing for ESG disclosures can be stressful for many wealth advisers — but it doesn’t have to be with some thoughtful planning.


Last week, Ethic launched a new series on our Insights page, “Our Take: ESG, Regulations, and Legislation.” The inaugural article focused on the U.S. Securities and Exchange Commission’s (SEC) proposed Climate Risk Disclosures Rule for Public Companies and how the upcoming ruling in October will require greater systemic transparency and accountability in reporting for companies. It will give companies a framework for decreasing their climate and financial risk and enable investors to make more informed investment decisions. 

This week, I’ll discuss a second regulation that the SEC is expected to finalize and release in October, the ESG Disclosures for Investment Advisers. This regulation will require additional disclosures regarding an investment adviser’s ESG strategies, including how they consider ESG factors in their investment strategies and methods of analysis. 

What do wealth advisers need to do right now to prepare for the new rule? Let’s explore.

The Nitty-Gritty on the ESG Disclosures for Investment Advisers

After decades of voluntary reporting on sustainability disclosure — where wealth advisers could create their own framework for what they did and did not report — the SEC’s landmark ESG Disclosures for Investment Advisers regulation means that wealth advisers and a bevy of other investment professionals will be required to adopt a standardized reporting structure with comparable disclosures of ESG-related information. 

The proposed regulation didn’t come out of the blue. Investor demand for ESG-related financial products has increased, and the resulting rapid growth of products cited as “ESG-,” “sustainability-,” or “impact-” oriented has shed light on the need for consistent, reliable information for investors. 

All information is valuable — and investors will be better equipped to make informed investment decisions only if they have all the relevant facts and data. 

The move by the SEC to combat greenwashing isn’t dissimilar to why the United States passed the Pure Food and Drug Act in 1906 to combat the proliferation of the marketing and sales of unsafe products to consumers. Today, the FDA provides oversight of all prescription medications, so no “snake oil” gets sold, and ensures the safety of our food supply, among other vital protections. 

Who is Impacted, and How Will This Affect Wealth Advisers?

The SEC’s proposed rule will apply to registered investment companies, business

development companies, registered investment advisers, and certain unregistered advisers. 

In addition to adhering to a standardized disclosure framework, the rule will require these individuals and entities to issue specific disclosures regarding ESG strategies in fund prospectuses, annual reports, and adviser brochures, incorporating qualitative and quantitative information concerning ESG investment practices. Those with ESG-related funds will also be required to present data in tables, allowing investors to compare funds at a glance. Additionally, certain funds with an environmental focus will need to disclose the greenhouse gas (GHG) emissions associated with their portfolio investments.

The amount of disclosure will depend on how central ESG factors are to a fund’s strategy. The proposed rule has broadly defined three types of ESG strategies:

  1. ESG Integration Funds that integrate ESG and non-ESG factors would be required to include ESG disclosure in their registration statements. They would be permitted to include ESG claims in their design and marketing materials but must restrain from making false or exaggerated claims (AKA greenwashing).
  1. ESG-Focused Funds for which ESG factors are “a significant or main consideration” would need to provide enhanced disclosures, including an ESG strategy overview table. Some ESG-Focused Funds that use proxy voting would also be required to disclose additional information about these activities. ESG-Focused Funds that consider environmental factors, such as greenhouse gas (GHG) emissions, in their strategies would also be required to disclose the carbon footprint of their portfolios and the methodology and data sources they use when considering GHG emissions.
  1. ESG Impact Funds seek to achieve specific ESG-related impacts. As a subset of ESG-Focused Funds, they would be subject to the same disclosure rules as well as additional disclosure on how they measure progress on their stated ESG-related impact.
Learn more about how Ethic helps advisers with proxy voting.

Ethic Can Help Wealth Advisers Prepare

We recognize that preparing for ESG disclosures can be stressful for many wealth advisers — but it doesn’t have to be. 

How can Ethic help wealth advisers and investors prepare? First, whether their funds are categorized as “integrated,” “focused,” or “impact,” wealth advisers stand to benefit from our expertise in assessing, measuring, and reporting impact. Our commitment to avoiding greenwashing extends into how we report to our clients — we show what, exactly, is in their portfolios and why in real time through our proprietary investment platform. 

We also facilitate proxy voting for our clients through Institutional Shareholder Services (ISS), a proxy advisory firm. For ESG-related issues, we cast votes on behalf of our clients based on ISS’s Socially Responsible Investing (SRI) research policy recommendations. 

Finally, we have a demonstrated history of helping each investor reduce their portfolio’s emissions by making investment decisions that are aligned with their personal values — and reporting on the metrics. To date, we’ve helped clients reduce the carbon footprint of their investment portfolios by an average of 62 percent compared to their benchmarks — the equivalent of about 217,000 metric tons.

Adopting a standardized reporting framework and using it to help investors better understand their investment decisions will help us better serve our clients — and we wholeheartedly welcome the increased regulation that will allow our industry to do this.

Don’t wait. Contact your relationship manager to learn more about how Ethic can help you and your clients prepare for the new ESG disclosures regulation.

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Sources and footnotes

Ethic Inc. is a Registered Investment Adviser located in New York, NY. Registration of an investment adviser does not imply any level of skill or training. Information pertaining to Ethic Inc’s registration or to obtain a copy of Ethic Inc.’s current written disclosure statement discussing Ethic Inc.’s business operations, services and fees is available on the SEC’s Investment Adviser Public Information website – or from Ethic Inc. upon written request at Information provided herein is for informational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Any subsequent, direct communication by Ethic Inc. with a prospective client shall be conducted by a representative of Ethic Inc. that is either registered or qualifies for an exemption or exclusion from registration in the state where a prospective client resides. Information contained herein may be carefully compiled from third-party sources that Ethic Inc. believes to be reliable, but Ethic Inc. cannot guarantee the accuracy of any third-party information.

Ethic Inc. does not render any legal, accounting, or tax advice. Ethic Inc. recommends all investors seek the services of competent professionals in any of the aforementioned areas. Ethic Inc. cannot provide any assurances that any investment strategies, simulations, etc. will perform as described in our materials. ALL INVESTMENTS INVOLVE RISK, ARE NOT GUARANTEED, AND MAY LOSE VALUE. BE SURE TO FIRST CONSULT WITH A QUALIFIED FINANCIAL ADVISER AND/OR TAX PROFESSIONAL BEFORE IMPLEMENTING ANY STRATEGY.


Alex Acosta is Ethic's chief compliance officer. She holds a BBA from Florida International University and a JD from Fordham Law School. Throughout her career, she has worked in various legal and compliance positions within the asset management industry. Alex is licensed to practice law in New York.

Melissa Banigan is a content strategist with over 15 years of communications experience working with global companies and nonprofits. Also a journalist and author, her work appears in The Washington Post, CNN, the BBC, NPR, and the Independent, among other publications, and she's written three books for youth.

Travis Korte is the associate director of Sustainability Research & Data at Ethic. Previously, Travis organized civic-minded technologists at Hack for LA and advised a wide range of clients on data science, data policy, and quantitative methods. You can follow him on Twitter at @traviskorte.