SEC Brings Much-Needed Transparency to Sustainable Investing

(Washington, D.C. – September 20, 2023) The Securities and Exchange Commission (SEC) today approved on a bipartisan basis a final rule that will help protect investors from misleading marketing, including about sustainable investments.

“The SEC’s action today is a vital step for improving the clarity of investment fund names – including sustainability-related names,” said Stephanie Jones, Senior Attorney at EDF. “The number of funds that are being marketed as ‘sustainable’ has grown rapidly because of investor demand, but the names of those funds don’t always help people understand what they’re investing in. The SEC’s new rule will bring more transparency and integrity to the market.”

Congress expressly authorized the SEC to regulate potentially misleading fund names in 1996. The SEC then issued its original Names Rule in 2001. The rule requires certain funds to align at least 80% of their assets with the characteristics suggested by the fund name.

Today’s update will bring terms like “sustainable” and “green” within the scope of the Names Rule. The update does not set specific definitions for those terms, but does require funds to define the terms used in their name and describe how those terms relate to their investment practices.

“Today’s SEC action will help clarify the claims that funds are making,” said Jones. “That will help all investors determine which funds best align with their objectives.”

EDF submitted comments to the SEC in support of this update to the Names Rule last year.

Read more about EDF’s work on sustainable investing here.