The guidance in this Notice relating to funds that do not refer to ESG factors in their investment objectives but that use ES G strategies differs depending on, as set out in Figure 1 above, whether the consideration of ESG factors plays a significant r ole in the fund’s investment process – that is, whether the fund is an ESG Strategy Fund or ESG Limited Consideration Fund. This updated guidance is consistent with the principle from the 2022 Notice that both the prospectus and sales communications of a fund should be clear about the extent to which the fund is focused on ESG.
The need for different guidance for these two types of funds arose because of two key developments that occurred after the publication of the 2022 Notice:
- Staff observed a considerable increase in the number of IFMs that included disclosure in their fund prospectuses about the consideration of ESG factors, often without being clear about the extent to which ESG factors are considered by the fund.
- Staff also observed a significant number of statements on the websites of IFMs that suggested that all or most of the IFM’s funds consider ESG factors as part of their investment process despite the consideration of ESG factors not being referenced in the investment strategies disclosure in the prospectuses of those funds. Through the ESG-Focused Reviews, staff learned from IFMs that most such funds only consider ESG factors to a limited extent.
These developments raised greenwashing-related concerns about funds that only consider ESG factors to a limited extent being marketed as funds for whom the consideration of ESG factors plays a significant role in the investment process and about inconsistencies between sales communications and prospectuses regarding the role of ESG considerations in the investment process. The differences in disclosure expectations between an ESG Strategy Fund and an ESG Limited Consideration Fund set out later in this Notice are intended to address these greenwashing-related concerns.
While this Notice provides some questions for IFMs to consider when determining whether a specific fund is an ESG Strategy Fund or an ESG Limited Consideration Fund, staff’s view is that there is no single factor that can be universally used to make this determination. We believe that the IFM of a fund is best positioned to assess the significance of the role that ESG factors pl ay in the investment process of a fund.