What the SEC Names Rule Means for ESG Funds and Greenwashing
- Media Manager
- Oct 26, 2023
- 1 min read
Microsoft Start - U.S. News & World Report
Written By: Jeff Reeves
Published: October 26th, 2023
When it comes to ESG funds, it can be hard to define exactly what that acronym means. Even if you know the words behind the abbreviation – environmental, social and governance criteria – it's often difficult to find a clear way to measure success in those areas.
Consider that some ESG funds are exclusionary, kicking out what they see as the worst actors. But sometimes that's based on market-wide rankings and not vs. peer groups in the same industry. Other times ESG funds look to highlight the companies with the best track record. But how do they measure what's "good" vs. what's "normal" or "bad"?
The scene has gotten so confusing in recent years that the federal agency that represents all exchange-traded funds (ETFs) and mutual funds, including ESG funds, has gotten involved. In September, the U.S. Securities and Exchange Commission adopted amendments to the decades-old Investment Company Act and the "Names Rule," seeking to provide a bit more transparency to investors.
As you can imagine, many investors want to align their personal values with their financial goals to build their nest egg. You may even put yourself in this camp. But unfortunately, a lack of clarity has led to "greenwashing" of some ESG funds. It's a play on the word whitewashing, implying that these mutual funds or ETFs are simply marketing themselves as "green" investments concerned with sustainability, but without actually delivering on that promise.
