In Focus

CII Urges SEC to Require “ESG” Funds to Explain Their Use of the Term

The SEC should require all funds that use “ESG” or “sustainable” in their name to explain what they mean by these terms, CII said in a May 5 letter. CII was responding to the agency’s request for comment on potential changes to its Names Rule for mutual funds and business development companies. With a growing number of funds billing themselves as environmental-, social- and governance-oriented, the SEC wants to make sure fund names do not mislead investors. In the letter, CII General Counsel Jeff Mahoney noted that “the current lack of a common understanding of ESG and ‘sustainable’ investment products makes it exceedingly difficult for the SEC to establish rules that would distinguish funds that use ESG or ‘sustainable’ as an investment strategy” vs. a type of investment. A better approach,  Mahoney wrote, would be for the SEC to require all funds that use those terms to provide investors with a summary explanation of what they mean by those terms, and to provide a detailed explanation in the prospectus.

CII Questions Facebook’s Return to S&P 500 ESG Index

CII General Counsel Jeff Mahoney wrote to S&P Dow Jones Indices May 14, questioning the restoration of Facebook to the S&P 500 ESG Index. S&P booted Facebook from the index in June 2019, on concerns about privacy issues. But S&P was satisfied by changes and added Facebook back earlier in May, despite Chairman and CEO Mark Zuckerberg’s continued control of the company through his super-voting rights. “CII believes that at the core of good corporate governance—the ‘G’ in ‘ESG’—is the principle of one share, one vote,” wrote Mahoney. He noted that Zuckerberg had further consolidated control recently with board changes such as the exit of independent board members who apparently had expressed disagreement with the CEO, in favor of new directors including a “close friend” of Zuckerberg’s and a former employee of the CEO’s private foundation. Mahoney noted strong support from CII for S&P’s policy against adding new dual-class stock companies to the standard S&P 500 index. He wrote that “it is odd that the S&P 500 ESG index is not following the same policy.”

CII-REF Report Examines New Poison Pills

The CII Research and Education Fund (CII-REF) on May 7 published a report on 46 shareholder rights plans (poison pills) adopted by U.S. companies so far this year. Nearly all were adopted as share prices plunged with the U.S. onset of the Covid-19 pandemic in late February and early March. The report describes poison pills and their evolution, and details the 2020 pills, including duration, trigger thresholds, qualifying offer provisions, passive investor exceptions and dead-hand provisions. The report is linked to a live spreadsheet that CII REF anticipates updating with new pill adoptions over the next several months.