Assets have been flowing steadily into ESG funds and are on target to hit $41 trillion by year end.

Are funds claiming to be ESG funds really observing EGS factors? Concerns are growing that many may be “greenwashing,” in that while they’re claiming their products are environmentally and socially conscious they really are not.

The SEC has proposed a new set of rules regarding ESG funds. One of proposed rules would regulate how funds are named, so investors aren’t misled by a name that may in fact be false.

Another rule is designed to create consistency around fund disclosures on marketing materials. The proposed rule would divide ESG funds into three categories:

  • Integration funds – ESG factors are integrated alongside non-ESG factors
  • ESG Funds - ESG factors are the primary consideration in stock selection
  • Impact funds – target specific ESG components (environmental, social or governance)

For each of the categories, a specific set of disclosures would be required on all marketing materials. Environmentally focused funds would also need to disclose information regarding greenhouse gas emissions.

The public has 60 days to submit comments to the SEC on the proposed rules before a final vote. Learn more in the full article from MarketWatch.