Investment advisers have come out in support of the reported investigation by the SEC of ESG investing.

According to the Wall Street Journal, the SEC is questioning the methodologies and criteria for the selection of companies by funds that tout ESG portfolios. ESG is an acronym for environmental-social-and governance observances. ESG investing is also known as impact, or socially responsible investing.

However, the SEC’s move may not be such a bad thing according to advisers, says InvestmentNews.

Confusion and misunderstanding

“There is a lot of confusion and misunderstanding about what ESG investing is,” said Allan Moskowitz, of Transformative Wealth Management. “The SEC might be doing us a favor. [It] could help clarify the criteria. There have to be ways of measuring different issues for different kinds of companies.”

Standardization

Ashlee deSteiger, founder of Gunder Wealth Management, hoped the SEC would provide standard ESG definitions, reporting requirements and disclosures. Moreover, these would make it easier for advisers to construct appropriate portfolios for their clients.

Dan Slagle, founding partner at Fyooz Financial Planning, echoed Ms deSteiger’s call for standardization: “At the end of the day, you should be able to justify your ESG selections, whether it’s with clients or the regulator.”

Robust demand for ESG

Lance King, counsel at Seward & Kissel, said the regulatory glare is unlikely to dent the investing demand for ESG-themed funds. “Investors are increasingly clamoring for it,” he said.

Furthermore, at Dan Slagle’s firm, there was a growing trend for young professional couples choosing to invest in ESG. He also seconded King’s observation that the SEC’s examination would not affect demand.

ESG green-washing

However, Ethan Powell, chief executive of Impact Shares, welcomed the SEC’s examinations of ESG for a very different reason.

He said the SEC’s action would deter ‘green-washing,’ – the process of conveying a false impression or providing misleading information about how a company’s products are more environmentally sound.

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