The US Securities Exchange Commission is considering an amendment Wednesday aimed at keeping investment companies from using misleading fund names to attract investors.
The so-called “Names Rule,” being considered at an SEC meeting Wednesday, is intended to target firms that use environmental or ESG-focused names as a means of fooling investors into thinking the funds only invest in companies that meet certain criteria.
This phenomenon is also known as greenwashing.
The change would require funds with a name that implies a particular focus to have at least 80% of investments that meet that focus. Fund managers would also be required to include disclosures in their prospectuses to define the terms in their fund names and the criteria involved in determining which investments meet it.
When the proposal was offered in May, SEC chair Gary Gensler called it a “truth in advertising” rule.
The investment fund industry has opposed the amendment since it was proposed, noting that the SEC’s $5 billion estimate in new compliance costs is an underestimate and arguing that the cost would be passed on to investors.
If approved, groups with more than $1 billion in assets would have 12 months to comply with the rule, while those with less would have 18 months.
Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com
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