The SEC’s Asset Management Advisory Committee (AMAC) is scheduled to meet on Sept. 16, 2020, to continue discussing environmental, social and governance (ESG) matters and private investments in the asset management industry.

The AMAC will also continue discussing diversity and inclusion as well as follow-up discussion on COVID-19 matters, according to the SEC’s Release No. 34-89693, Asset Management Advisory Committee.

ESG

At its May meeting, the advisory panel’s ESG subcommittee gave an update about current ESG practices, and it plans to develop recommendations for the SEC to consider at future meetings.

For example, they discussed how ESG performance should be measured. Currently, there are some scoring systems, but the subcommittee noted that without a consistent framework, it is difficult to compare ESG fund performance.

The subcommittee noted that there is a lack of well-defined, systematic steps in how managers integrate ESG in their investment process.

In order to have comparability, the subcommittee believes that there should be:

  • a clear disclosure of ESG score data including history;
  • use of primary and secondary benchmarks;
  • disclosure on expected non-financial outcome—alignment of outcome with fund’s objective; and
  • disclosure of independent validation of the degree of ESG compliance—ingredient mapping.

This comes as investors increasingly put money in ESG funds, and companies are also increasingly touting their ESG efforts through voluntary sustainability reports.

Diversity

During a July meeting of the advisory committee, outside experts spoke about diversity and inclusion in the asset management industry.

For example, there was a discussion of a study by the Knight Foundation to assess the representation of women and racial minorities among investment firms used by the country’s top 50 charitable foundations, such as Bill & Melinda Gates Foundation.

The study analyzed available endowment investment data for 26 of the 50 foundations and included only endowment investments managed by firms in the United States, amounting to $63.95 billion.

The study found that $8.62 billion, or 13.5%, is invested with diversely-owned firms. $6.82 billion, or 10.7%, is invested with women-owned firms, and $5.93 billion, or 9.3%, is invested with minority-owned firms. About 50% of the $8.62 billion is invested with firms that are both women-and minority-owned.

At its upcoming meeting, AMAC is slated to discuss ways to improve diversity and inclusion.

COVID-19

Also in May, outside speakers gave presentations about how COVID-19 affected investments and fund flows.

The chief economist of the Investment Company Institute (ICI) noted massive shock to the financial markets because of the pandemic. Volatility surpassed levels seen in 2008, the last financial crisis. During this health and economic crises, ICI said yields on long-term corporate debt jumped while short-term credit markets were stressed. Overall, the group found that fund flows reflected market conditions.

Scheduling conflicts for commissioners?

Separately, on the same day AMAC is meeting, the SEC is also scheduled to consider finalizing a controversial rule that is intended to make it more difficult for shareholders to bring up resolutions—such as disclosure of political spending—up for vote during a public company’s annual meeting.

For more information on this topic, or to learn how Baker Tilly SEC  accounting specialists can help, contact our team.

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