The U.S. Securities and Exchange Commission (the “SEC”) recently proposed amendments to certain rules and reporting forms under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), which would require registered investment advisers and exempt reporting advisers to disclose additional information regarding how they consider environmental, social and governance (“ESG”) factors in their advisory activities. 
Under Chairman Gensler, the SEC continues to focus on greenwashing and the inconsistency of ESG-related information made available to investors. Commentators have noted there is little uniformity or standardization of ESG-related information that is made available to investors, despite a significant increase in investor demand for ESG strategies. The SEC expressed concern that investment advisers marketing ESG strategies may exaggerate their ESG practices or the extent to which their services take into account ESG factors (a practice referred to as “greenwashing”). The proposed amendments seek to provide more consistent, comparable and reliable information for investors with respect to ESG factors, including by:
- creating three classifications of ESG-related strategies (described below);
- amending Form ADV Part 1A to collect additional data from investment advisers related to use of ESG factors in their advisory business; and
- amending Form ADV Part 2A to include information regarding the impact of ESG factors on strategies and methodologies of registered investment advisers. 
The proposed amendments create three categories of ESG-related strategies: (1) ESG Integration, (2) ESG Focused, and (3) ESG Impact:
- “ESG Integration” strategies typically consider one or more ESG factors alongside other, non-ESG factors (such as traditional financial metrics) and that any ESG factors considered are not dispositive with respect to any particular investment decision.
- “ESG Focused” strategies are those that focus on one or more ESG factors by using them as a “significant” or “main” consideration in an investment decision. An example of an ESG Focused strategy is one that employs exclusionary screens for investments which do not meet certain ESG-related criteria.
- “ESG Impact” strategies are those that have a stated goal seeking to generate specific ESG-related benefits, such as advancing the availability of clean water or the new construction of affordable housing units.
Form ADV Part 1A
If enacted as proposed, the amendments would result in the following changes to “check-the-box” style disclosures in Form ADV Part 1A:
- Require investment advisers to disclose whether they employ an ESG-Integration, ESG Focused or ESG Impact approach and whether they consider ESG factors as part of one or more significant strategies in advisory services provided with respect to each separately managed account (Item 5.K) and private fund (Section 7.B.(1) of Schedule D) clients.
- Require investment advisers to disclose in Item 5.M whether they follow any third-party ESG framework in providing advisory services as well as identifying by name the third-party.
- Require investment advisers to disclose in Items 6 and 7 (and 6.A and 7.A of Schedule D) whether they conduct other business activities as ESG providers or have related persons that are ESG providers.
Form ADV Part 2A
If enacted as proposed, the amendments would result in the following changes to Form ADV Part 2A:
- Require investment advisers sponsoring wrap fee programs to provide ESG-related disclosures in the wrap fee program brochure, including (1) a description in Item 4 regarding which ESG factors the investment adviser considers and how the factors are incorporated under each wrap fee program, and (2) a description in Item 6 regarding which ESG factors are considered by the investment adviser and how they are considered, any criteria or methodology used to assess portfolio managers’ applications of the relevant ESG factors into their portfolio management, and an explanation of whether the investment adviser or a third party reviews portfolio managers’ applications of the relevant ESG factors and the nature of the review.
- Require a new Item 8.D which would provide a description of any ESG factor considered for each significant investment strategy or method of analysis, together with a discussion of how these factors are incorporated into the investment adviser’s investment advice (i.e., whether and how the adviser employs ESG Integration, ESG Focused, or ESG Impact strategies).
- Require a description in Item 10.C of any material relationship or arrangement between the investment adviser (or any of its management persons) and an ESG consultant or other ESG service provider. Further, if such a relationship or arrangement creates a material conflict of interest, the investment adviser would be required to describe the nature of conflict and how it is addressed by the investment adviser.
- Require, for investment advisers with specific voting policies or procedures that include one or more ESG considerations, a description in Item 17.A regarding which ESG factors such investment adviser considers and how those factors are considered when voting client securities.
These proposed amendments highlight the SEC’s focus on ESG-related issues and emphasize its willingness to increase disclosure requirements with respect to those issues. 
Public comments to the proposed amendments will be accepted for 60 days following publication of the proposing release on the SEC’s website (which occurred on May 25, 2022) or 30 days following publication of the proposing release in the Federal Register, whichever period is longer.