FOR IMMEDIATE RELEASE
August 16, 2022
Coalition tells SEC Rules Must Stop Wall Street Greenwashing & Other Exaggerated Claims that Mislead Investors
A group of more than 90 organizations letters to the Securities and Exchange Commission urging the agency to adopt stronger rules for environmental, social, and corporate governance investing
More than 90 organizations—including the Action Center on Race and the Economy (ACRE) and Americans for Financial Reform Education Fund (AFREF) —submitted two comment letters to the Securities and Exchange Commission (SEC) today urging the agency to enshrine stronger rules for environmental, social, and governance (ESG) investing to stop the current practice of “greenwashing.”
The letter exposes how Vanguard, BlackRock and other asset managers include polluting, surveillance, weapons, and carceral corporations in their ESG funds.
“The current state of ESG investing is broken, allowing for the farcical scenario whereby a literal private prison company is counted as a ‘responsible’ ESG investment by the biggest asset manager in the world,” said Cecilia Behgam, senior research analyst for climate and environmental justice at ACRE. “The SEC currently lacks sufficient disclosures and standards around ESG funds, meaning companies that make surveillance technologies, companies that manufacture chemicals that pollute our air and water, and companies that imprison thousands of people across the country—all can be included in ESG funds by the Vanguards and BlackRocks of the world. It’s deeply concerning for impacted communities and investors. It is good to see the SEC taking a crucial step in proposing ESG rules, but the agency must strengthen these rules to ensure investors receive honest information to make informed investment decisions.”
Research by ACRE found that Vanguard’s U.S. based ESG funds hold almost $6 billion in investments in fossil-fuel powered utilities, petrochemical producers, weapons manufacturers, and other industries that disproportionately harm communities of color. By including corporations in ESG funds that further racial injustice and worsen environmental degradation and climate change, Vanguard and other asset managers are misleading investors.
The audio surveillance company ShotSpotter, for instance, is listed as a strong ESG investment by one investment firm, despite widespread protests against the technology in cities across the country and a national campaign to stop its deployment. The private prison company CoreCivic is also included in ESG funds by BlackRock , for example.
Asset managers across the industry currently rely on ESG screening tools that label alcohol or adult entertainment as “controversial” investments, for instance, but do not apply that label to petrochemical companies, mining operations, surveillance software, and a host of other controversial industries. This allows companies like mega-polluter Dow Chemical to remain in ESG funds despite its long history of environmental, labor, and human rights violations, alongside the companies behind the Dakota Access Pipeline, for instance.
“For eight years, we have been fighting the Dakota Access Pipeline,” said Matt Remle, Co-Founder of Mazaska Talks and member of the Standing Rock Sioux Tribe. “DAPL violates our tribal treaty rights and Indigenous peoples’ right to Free, Prior, and Informed Consent. Indigenous water protectors and allies led a fierce social movement that delayed construction of the pipeline—from numerous lawsuits to protests often met with police violence. And yet, as DAPL is operational, and our resistance continues, we see that companies behind DAPL are in ESG funds—even though this pipeline is horrible for the environment and threatens the Standing Rock Sioux Tribe’s livelihood and main source of water. The environmental and socially responsible label on these funds must be compared to what’s happening to communities like ours. We will continue to resist DAPL and the companies that put our lives at risk.”
Under the SEC’s current rules, corporations routinely fund extractive and polluting industries, like oil and gas companies, while at the same time claiming ESG-compliant investing, allowing them access to billions of dollars worth of additional funds from investors who are duped into believing their money is going towards ESG-friendly enterprises.
“This is a critical step to stop Wall Street fund managers from using misleading names like ‘ESG,’ ‘Green,’ or ‘Socially Responsible’ to market products that are actually bad for the climate, workers, and communities,” said Alex Martin, senior climate finance policy analyst at Americans for Financial Reform Education Fund. “Right now, the vast majority of ‘green’ funds are not even Paris Agreement-aligned, and the worst offenders are loaded with fossil fuels. Without these rules, Wall Street will continue to get away with duping investors who want products that align with their needs and values.”
The Securities and Exchange Commission (SEC) recently proposed rules that would prevent misleading use of labels on funds that weigh Environmental, Social and Governance (ESG) factors like greenwashing and require critical disclosures about these funds’ strategies to protect investors.
However, the proposed rules do not go far enough, and the first letter specifically urges the agency to:
- Strengthen disclosure on the climate impacts of polluting industries, particularly on Black, Brown, and Indigenous frontline communities;
- Require investment advisers and companies to disclose investments in corporations that rely on prison labor, racist policing, weapons productions, and surveillance technologies; and
- Require disclosures for how screening tools for ESG investment funds are applied.
The second letter led by AFREF supports the SEC’s proposal and urges the agency to ensure that:
- Funds should not be allowed to use a name like “ESG,” “Sustainable,” or “Green” unless the label genuinely reflects a major focus of their investment strategy, and those funds describe how they define those terms and their strategies, how they engage with companies to improve their sustainability, and what impacts they seek to achieve;
- Environmentally-focused funds should disclose the full set of financed greenhouse gas (GHG) emissions, including Scopes 1, 2, and 3, without taking into account carbon offsets or credits; and
- Additional disclosures on pressing ESG issues are addressed through further rulemaking.
The letters are being sent as part of the SEC’s comment period for its recently-proposed rules, which ends on August 16.