Most of the issues raised during the ESG Prospectus Reviews related to investment strategies disclosure. Approximately two-thirds of the comments raised in this area related to unclear or inaccurate investment strategies disclosure, including disclosure relating to: (a) which types of ESG strategies are being used by the fund; (b) which specific ESG factors are considered as p art of the ESG strategies; and (c) how such factors are being evaluated and monitored by the portfolio manager.
Staff also observed a trend of IFMs including disclosure about the consideration of ESG factors in the investment process of the IFM’s funds that was not clear about the limited extent to which ESG factors are considered by many of the funds in the prospectus.
In addition, staff raised comments in relation to unclear or inadequate disclosure about specific elements of the fund’s ESG strategies, including the fund’s use of proxy voting and shareholder engagement as ESG strategies, company-level ESG ratings and scores, ESG-related indices and benchmarks, discretionary negative screening, and ESG-related targets. In particular, staff observed that it was not always clear from prospectus disclosure whether ESG-focused proxy voting and shareholder engagement were principal investment strategies of a fund or whether the IFM had a general proxy voting or shareholder or issuer engagement approach that addressed ESG matters among other matters.
There were also some specific issues raised in relation to index-tracking funds, funds that invest in underlying funds, and IFMs that did not have ESG-related policies and procedures for their funds, which are discussed in the guidance below.