SEC cancels proposed rule on ESG disclosures for investment advisers and investment firms

On June 12, 2025, the Securities and Exchange Commission (SEC) announced the withdrawal of numerous rulemakings proposed during the previous administration. One of these proposals, introduced in 2022, aimed to enhance disclosures by certain investment advisers and investment companies regarding Environmental, Social, and Governance (ESG) investment practices. The plan mandated that registered investment advisers, specific exempt advisers, registered investment companies, and business development companies furnish more details about the impact of ESG factors on their investment choices.

The decision to retract this proposal didn’t take many by surprise. It reflects the SEC’s broader stance of moving away from strict disclosure requirements. In the realm of registered funds, the 2022 proposal entailed various detailed obligations. For instance, all “ESG-focused funds” exploring environmental issues were obliged to reveal specific greenhouse gas (GHG) metrics, irrespective of their environmental focus, whether related to climate change or other environmental subjects.

Despite the withdrawal of the 2022 proposal, asset managers must continue aligning their investment strategies with their marketing efforts and fundamental fund disclosures. Previously, the SEC pursued enforcement actions against investment advisers for purported misstatements or regulatory lapses concerning thematic investment strategies, including ESG. Recently, Commissioner Mark Uyeda highlighted the issue of greenwashing in conversations at the 2025 Conference on Financial Market Regulation, citing the significance of SEC comment letters.

Asset managers should not interpret the withdrawal of the 2022 proposal as the end of SEC’s oversight on ESG issues. While it marks a shift, numerous avenues remain open for ESG themes to capture regulatory attention under the SEC’s “back to basics” approach. Concerns relating to fiduciary responsibilities, appropriate policies and procedures, and precise disclosures all underscore the challenges that asset managers face with the integration of ESG considerations. Additionally, asset managers might be scrutinized for under-disclosing the impact of ESG or other thematic elements on their investment strategies. This analysis becomes pertinent for asset managers mandated to make ESG disclosures under diverse regimes, like the EU Sustainable Finance Disclosure Regulation, leading to discrepancies in ESG disclosure levels between US and non-US investors.

Moving forward, asset managers should deliberate on various strategies, including reviewing their programs, whether ESG-related or otherwise. They could consider mirroring the SEC’s actions by reevaluating key aspects of their operations. This could entail:

– Analyzing investment vehicle documentation and market materials to ensure transparency and alignment on key limitations, exceptions, or other critical considerations across jurisdictions.
– Evaluating how these materials are embedded in the underlying policies and procedures governing investment decisions.
– Confirming the implementation of governance processes and controls in practice, along with revising any deficiencies as needed.

Clarity and consistency are fundamental for asset managers and should guide their practices across different topics, aid navigation through times, and align with the SEC’s priorities.