(Reuters) – The US Securities and Exchange Commission will on Wednesday propose rule changes aimed at eliminating unfounded claims from funds on their environmental, social and corporate governance tasks, and enforce more standardization of such disclosures.
The proposal will describe how ESG funds should be marketed and how investment advisers should disclose their reasoning when labeling a fund, according to people who have spoken to the SEC about the measures.
The proposal would also require investment funds with terms such as “ESG”, “sustainable” and “low carbon emissions” in their names to reveal the criteria and underlying data used to support the label, the people said.
Although the new rules will affect all funds, their target is ESG funds, which pulled in a record $ 649 billion globally by November 30, up from $ 542 billion and $ 285 billion in 2020 and 2019, respectively, according to Refinitiv Lipper data.
Regulators and activists have become concerned that US funds that want to monetize the popularity of ESG investments could mislead shareholders about the underlying holdings of their products, a practice known as “greenwashing”.
“We are hopeful that the new rule will require fund managers to follow basic naming guidelines. This will help eliminate confusion and misleading marketing,” said Andrew Behar, chairman of the climate activist group As You Sow, which discussed the potential rules with the SEC.
He said that market participants have so far exploited a loophole in the current rules when naming funds.
SEC President Gary Gensler has said that when it comes to sustainability-related investments, asset managers can confuse investors with conflicting names or certain terms or criteria they use.
However, industry groups warn that the agency’s goal of standardizing ESG labels may reduce investors’ choices.
“We oppose measures that would … replace a regulator’s assessment of the investment strategy with that of professional trustees,” said Janay Rickwalder, a spokeswoman for the Investment Adviser Association, adding that her group had discussed the issue with the SEC on these issues. .