SEC Weighs Crackdown on Phony Environmental and Social-Justice Funds
On Wednesday, the SEC proposed broadening the scope of its Names Rule, which enables the agency to take action against mutual and exchange-traded funds with misleading names. The amendment would require funds that use ESG (Environmental, social and governance) or similar terminology in their names to put at least 80% of their holdings into those assets. According to the SEC, the update "would help to prevent potential 'greenwashing' in fund names by requiring a fund's investment activity to support the investment focus its name communicates." The SEC first floated such a change in 2020. Should the proposal pass, it would be the first amendment to the Names Rule since it was adopted more than two decades ago. The agency also proposed upping disclosure rules for funds that market themselves under the ESG banner, mandating that they explain how they plan to track their progress towards such goals.