January 10, 2023

Should the SEC Ban ESG Funds?

daffodils in front of the Feliciano School of Business

Feliciano School of Business professor, Dr. A. Seddik Meziani from the Department of Accounting and Finance was recently featured in a World NewsEra article that focused on the issues surrounding the marketing phenomenon known as ESG (environmental/social/governance) investing. As the number of concerns has grown over the past few years, the SEC is considering disclosure requirements for funds marketing themselves under the ESG banner.

The mix of marketing and investing can pose a risk in misleading investors as to an ESG fund’s investment goals vs what actual holdings are within the fund. There are problems surrounding the meaning of the terms as well as greenwashing (exaggerated or false claims) that lead some in the industry to feel the SEC should consider prohibiting ESG funds from using the term “ESG” from its prospectus and other marketing material.

Dr. Meziani was asked, “Should the SEC Ban ESG Funds?”. He said, “Although ESG-focused funds admittedly don’t do well in terms of their compliance with regard to ESG factors, we shouldn’t, so to speak, throw out the baby with the bath water. Banning them altogether is quite extreme when the issuance by the SEC of some rule proposals establishing a clear and sturdy framework for their use could largely suffice.”