Sustainable Investing: Risk-management tools aren’t equipped for climate change and other systemic shocks. This is what ESG investors need to be ready.

With ESG assets under management projected to surpass $40 trillion this year, the U.S. Securities and Exchange Commission is working to crack down on “greenwashing” funds that claim an ESG label but don’t actually meet environmental, social or governance standards. 

The SEC recently voted to propose rules that would create consistency for ESG disclosures and create categories of funds that mix ESG and traditional factors. This comes after proposed rules on climate change disclosures from investors, and pending rules on human…