SEC Retreats on ESG: What the Withdrawal of Key Rules Means for Investors
Overview
The U.S. Securities and Exchange Commission (SEC) has officially withdrawn two major ESG-related rule proposals, signaling a shift in regulatory momentum. These withdrawals reflect broader political and legal pressures reshaping the future of ESG oversight in the U.S.
A Halt to ESG Disclosure Rules
In a surprising move, the SEC announced it will no longer pursue two proposed rules: one requiring enhanced ESG disclosures from investment advisers and funds, and another altering the shareholder proposal and resubmission process. These rules were part of a broader Biden-era push to increase transparency and accountability in ESG investing. Their withdrawal was included in a recent agenda update, which also listed 12 other proposals the agency is abandoning.
Why It Matters
The ESG disclosure rule, first proposed in May 2022, aimed to combat greenwashing by requiring funds to clearly outline their ESG strategies in prospectuses, annual reports, and brochures. It also would have mandated disclosure of greenhouse gas emissions for environmentally focused funds. The goal was to help investors make apples-to-apples comparisons between ESG offerings. However, the rule never made it to finalization, missing deadlines in both April and October 2024.
Political and Legal Pressures
The SEC’s decision comes amid increasing political scrutiny and legal challenges. The agency had already stopped defending its climate risk disclosure rule in court earlier this year, leaving states to take up the case. Meanwhile, other ESG-related regulations, such as the Department of Labor’s rule allowing retirement plans to consider ESG factors, are also being reconsidered or rescinded
What’s Next for ESG Regulation?
While the SEC’s withdrawal marks a setback for ESG advocates, it doesn’t spell the end of ESG investing. Enforcement of the Investment Company Act’s Names Rule—which requires funds labeled “sustainable” to invest at least 80% of assets accordingly—has merely been delayed, not canceled. Large funds must comply by June 2026, with smaller funds following by December 2026
