Bryan Corbett: “Consistent, comparable, and reliable climate-related disclosures from public companies will enable alternative asset managers to better assess their investment risk and serve the needs of their investors.”
WASHINGTON, DC – Managed Funds Association (MFA), the trade association for the global alternative asset management industry, today submitted a comment letter to the U.S. Securities and Exchange Commission (SEC) in response to its proposed rule to enhance and standardize disclosures of climate-related matters by public companies. The letter shares support for the SEC’s objectives but highlights that the proposed rule would lead to significant costs to public companies.
MFA emphasizes that the Commission must balance the value of additional information disclosed and the cost to produce it. Investors support having a vibrant and robust public market. While supportive of having consistent, comparable, and reliable climate-related disclosures, investors are sensitive that the related costs to issuers may make it challenging for issuers to go public or stay public.
“Consistent, comparable, and reliable climate-related disclosures from public companies will enable alternative asset managers to better assess their investment risk and serve the needs of their investors,” said MFA President and CEO Bryan Corbett. “While we support the SEC’s objective, its rule can be better calibrated to increase value to investors and minimize costs to public companies. We urge the Commission to sequence its rules so that reliable climate-related disclosures from issuers are available before the SEC considers imposing a reporting requirement on advisers.”
To manage costs, MFA suggests that the SEC’s proposed rule should align more closely with existing standards like the Task Force on Climate-Related Financial Disclosure (TCFD). MFA also emphasizes the importance of interoperability with other jurisdictions’ regimes as market participants are subject to an increasing number of ESG-related disclosure rules across the globe.
MFA further urges the SEC to sequence its climate/ESG rules to ensure that the issuer disclosures on climate-related risks are in effect and available to the public before advisers are required to make disclosures dependent upon issuer information. Additional detail from the letter is available below.
MFA shares support for the SEC’s objective to require consistent, comparable, and reliable climate disclosure from issuers. From the letter:
“When issuers provide consistent, comparable, and reliable information on climate-related matters, MFA members will be able to make better informed judgments about the impact of climate-related risks on investments. In particular, MFA supports the use of quality financial data to measure climate risks given the materiality and importance of climate-related matters.”
However, MFA stresses that the proposed rule requires some information of which the costs to issuers may outweigh any incremental benefit to investors. From the letter:
“[T]he Proposed Rules go further than what the TCFD recommends by requiring a level of detail and granularity far exceeding the TCFD framework. MFA believes that the final rules should be as closely aligned to the TCFD framework as possible in order to provide the appropriate disclosures to investors without unnecessary costs on issuers. The additional information required by the Proposed Rules that goes beyond TCFD does not provide a material benefit to investors and in fact may harm the public markets by creating undue costs on issuers to produce such information.”
MFA emphasizes that the Commission should sequence its regulations so that climate-related risks are disclosed by issuers before investment advisers are required to report on such information to their investors. From the letter:
“MFA urges the Commission to allow sufficient time for issuer disclosures to develop in response to new rules before finalization of the Adviser ESG Rule. This sequencing will allow issuers, investors, and other market participants to adequately digest the new disclosures available. It will also permit funds to design appropriate processes and procedures based on new issuer disclosures and climate-related data. The failure to allow for this type of sequencing would place an undue burden on advisers and introduce inconsistency and confusion amongst various market participants.”
MFA’s full comments to the SEC’s proposed rule can be found here.
About the Global Hedge Fund and Alternative Asset Management Industry
The global hedge fund and alternative asset management industry, including hedge funds, credit, managed futures, and hybrid funds that invest in private companies, has assets under management of $4.3 trillion (Q2 2021). The industry serves thousands of public and private pension funds, charitable endowments, foundations, sovereign governments, and other global institutional investors by providing portfolio diversification and risk-adjusted returns to help meet their funding obligations and return targets.
About the Managed Funds Association
Managed Funds Association (MFA) represents the global hedge fund and alternative asset management industry and its investors by advocating for regulatory, tax, and other public policies that foster efficient, transparent, and fair capital markets. MFA’s more than 150 member firms collectively manage nearly $2.6 trillion across a diverse group of investment strategies. Member firms help pension plans, university endowments, charitable foundations, and other institutional investors to diversify their investments, manage risk, and generate attractive returns over time. MFA has a global presence and is active in Washington, London, Brussels, and Asia. www.mfaalts.org
