In a move that the SEC argues is to combat deceptive naming by U.S. investment funds, the Securities and Exchange Commission (SEC) has unveiled updated regulations aimed at curbing some naming practices. These changes to the decades-old SEC “Name Rule” demand that 80% of a fund’s portfolio aligns with the asset advertised by its name.
The revised rule directly addresses the surge in funds seeking to exploit investor interest in Environmental, Social and Governance (ESG) investing by adopting names that do not accurately reflect their investments or strategies. SEC Chair Gary Gensler emphasized the importance of truth in advertising, asserting that “a fund’s investment portfolio should match a fund’s advertised investment focus.”
Notably, the rule applies not only to ESG-focused funds but also to those with names suggesting a focus on particular characteristics such as “growth” and “value,” as well as economic themes like artificial intelligence, big data or health innovation. Funds will now be obligated to define the terms they use and describe the criteria guiding their investment choices in their disclosures.
With the SEC’s strengthened “Names Rule,” funds with names suggesting an ESG or sustainable focus will be required to ensure that at least 80% of their portfolio aligns with these claims.
The funds have to keep written records documenting compliance defining the terms used in the fund’s name including the specific criteria the fund uses to select the investment the term describes.
If you are interested in joining the Energy Workforce’s ESG Committee, Contact Senior Director Energy Policy Maria Suarez-Simmons.
Maria Suarez-Simmons, Senior Director Energy Policy, writes about industry-specific policies for the Energy Workforce & Technology Council. Click here to subscribe to the Energy Workforce newsletter, which highlights sector-specific issues, best practices, activities and more.