As discussed earlier, there is currently a lack of consistency in ESG-related terminology and definitions used throughout the investment fund industry, especially with regard to ESG strategies, which increases the potential for investor confusion around ESG-Related Funds.
A fund’s description of the ESG strategies that it uses must be written using plain language in order to ensure that investors are able to understand the fund‘s investment strategies. In addition, if a fund’s prospectus includes other ESG-related terms that are not commonly understood, it should provide a clear explanation of those terms using plain language in accordance with the requirement that the prospectus provide full, true and plain disclosure of all material facts.
Staff encourage industry participants, including IFMs, to develop common ESG-related terms and definitions, particularly with regard to ESG strategies, which would enable investors to better understand ESG-Related Funds and make informed investment decisions about them.