BlackRock warns Wall Street watchdog new ESG rule could harm investors

© Reuters. FILE PHOTO: The BlackRock logo is pictured outside their headquarters in the Manhattan borough of New York City, New York, U.S., May 25, 2021. REUTERS/Carlo Allegri

By Katanga Johnson

WASHINGTON (Reuters) - The world's largest asset manager BlackRock Inc (NYSE:BLK). warned the U.S. Securities and Exchange Commission (SEC) this week that its proposed rules aimed at fighting "greenwashing" by fund managers will confuse investors.

BlackRock made the claims in a letter filed this week in response to a SEC May proposal to stamp out unfounded claims by funds about their environmental, social and corporate governance (ESG) credentials. The rules also aim to create more standardization around ESG disclosures.

Regulators and activists have become concerned that U.S. funds looking to cash in on the popularity of ESG investing may be misleading shareholders over their ESG credentials.

While BlackRock acknowledged the need to boost oversight, it questioned the SEC's demand for more details on how funds should categorize strategies and describe their ESG impact, arguing such details could mislead investors about how much ESG really matters when managers pick stocks and bonds.

"The proposed requirements would increase the potential for greenwashing and lead to investor confusion," BlackRock wrote in its letter.

"The granular nature of requirements will inevitably lead to the disclosure of proprietary information about these strategies, reducing the competitive advantage of those unique insights."

Also at issue is how the SEC's proposal outlines how ESG funds should be marketed and how investment advisors should disclose their reasoning when labeling a fund.

While SEC Chair Gary Gensler said in a May statement the measures respond to growing investor demand for such details, industry groups warn the agency's aim to standardize ESG labels could reduce investor choice.

The Managed Funds Association said it also supported the SEC’s goal to promote better disclosure, but with concerns.

"Requiring an adviser to provide extensive disclosures concerning how it integrates ESG factors—no matter how incidental the consideration may be...—will result in undue emphasis on an otherwise immaterial strategy," the group said.