SEC advisory committee recommends diversity, ESG disclosures

Chairman Gary Gensler says agency is looking into what asset managers mean when they call funds 'sustainable.'

An advisory panel to the Securities and Exchange Commission encouraged the agency Wednesday to implement diversity disclosures by registered investment advisers and funds, and strengthen environmental, social and governance disclosures for public companies and investment products.

The SEC’s Asset Management Advisory Committee approved both the diversity and ESG proposals unanimously by voice votes. The panel is made up of financial industry officials, academicians and other experts who represent the views of investors, funds and advisers. The SEC may or may not act on its guidance.

Among its diversity and inclusion recommendations, the AMAC said the SEC should require registered investment advisers to disclose gender and racial diversity in their workforce, officer and ownership ranks. It also said the SEC should require investment funds to disclose the gender and racial diversity of their boards, workforces and executive leadership and ownership.

In providing context for its diversity recommendations, the committee cited research that shows that of the $70 trillion of assets under management globally, less than 1% are managed by minority- or women-owned firms.

Among the ESG recommendations the committee approved Wednesday, it called on the SEC to “foster meaningful, consistent and comparable disclosure of material” ESG matters by stock issuers. It also said the SEC should suggest best practices for ESG investment product disclosure, including a clear description of the product’s strategy and investment priorities. The product disclosures should align with a taxonomy developed by the Investment Company Institute.

In remarks to open the AMAC meeting, SEC Chairman Gary Gensler indicated the agency may already be taking some of the steps the committee recommended.


The agency is looking into what asset managers mean when they market funds as “green” or “sustainable,” Gensler said.

“I think investors should be able to drill down to see what’s under the hood of these funds,” he said. “As there’s not a standardized meaning of these sustainability-related terms, I’ve asked staff to consider recommendations about whether fund managers should disclose the criteria and underlying data they use.”

That work will occur in tandem with the SEC’s rulemaking related to public company disclosures related to climate risk and human capital, Gensler said.

He also said he has asked SEC staff to review SEC guidelines for naming investment funds to ensure investors are not misled by the nomenclature.

“Together, I think updates to fund disclosures and to naming conventions could bring needed transparency to the asset management industry, particularly in light of the significant growth in the sustainability area,” Gensler said.

He agreed with the AMAC that greater transparency about the asset management industry’s workforce can lead to improving diversity and inclusion.

“I have asked SEC staff to consider ways that we can enhance such transparency,” Gensler said. “For example, this could include requiring disclosure of aggregated demographic information about an adviser’s employees and owners. It also could include information about an adviser’s diversity and inclusion practices in its selection of other advisers.”


Republican SEC Commissioner Hester Peirce voiced concerns about the AMAC’s “focus on government-mandated diversity classifications” for the asset management industry.

“Would such classifications disempower, rather than empower, people?” Peirce asked during her opening statement. “What if, for example, an African American woman who owns an asset management firm prefers to be identified by her Wharton finance degree and her deep knowledge of fixed-income markets rather than her ethnicity or gender, the characteristics the recommended SEC disclosure mandate might emphasize?”

She framed her misgivings about potentially misguided diversity disclosure with a rumination about the Fourth of July.

“We are united not by external characteristics, but by an internal commitment to the dignity of every individual, her freedom to make the choices that are best for her and her family, and the truth that all people are created equal,” Peirce said. “Being American is not about what you look like, where your forebears came from, or how recently they came.”

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