Earlier this week, the US SIF: The Forum for Sustainable and Responsible Investment, a Washington, D.C.-based nonprofit dedicated to advancing sustainable investing practices across all asset classes, filed formal comment letters against the SEC’s proposed rules related to the ESG designation.

The "ESG" in ESG investing stands for environmental, social and corporate governance issues. It’s a much-debated label that’s ostensibly intended to certify investment vehicles and funds that abide by environmentally friendly, sustainable-energy practices. But how exactly it’s used has become a political football.

Conservatives such as Florida Gov. Ron DeSantis, a potential Republican presidential candidate in 2024, have stirred up crowds by decrying the “ESG movement” as an attempt to put social causes ahead of economic freedom. The White House, on the other hand, has made environmental policies and sustainable energy cornerstones of the Biden administration, seeming to support the SEC’s insights to develop a disclosure framework for ESG risk factors.

In a statement, US SIF’s Bryan McGannon applauded the SEC’s “effort to bring more clarity to fund names and disclosures.”

But he added that there are “several areas of misalignment” between the SEC’s proposed rulemaking and fund practices and investor needs.

Because of a lack of clarity, he said, the proposal will fail to provide investors with the information they need to evaluate how well different funds comply with ESG factors. The proposal also lacks flexibility, he said, which will ultimately generate higher compliance costs and diminish the intended benefits.

Among the US SIF’s recommendations are the following:

• Remove the fund categories and require all funds that consider ESG factors to disclose the same information to investors.

• Require a qualitative explanation of shareholder engagement activities instead of one metric on the number of meetings held.

• Require consistent greenhouse gas emissions metrics disclosures for funds that consider climate-related factors.

• Eliminate the proposal’s provisions applicable to registered investment advisors.

• Clarify the definition of funds that may not use ESG or sustainability terms in the fund name.

• Ensure flexibility for funds to come back into compliance upon departure from the 80% policy requirement.

As a final point, McGannon noted that “ESG investing” may be a misnomer. Properly used, “ESG” should refer to the “data points used in sustainable investment strategies, not the actual investments and strategies themselves,” he said. It would be more understandable to most investors, he suggests, to refer instead to investments in “sustainable” technoloies and practices.