U.S. Securities and Exchange Commission adopts rule to strengthen fund integrity and market confidence, reduce greenwashing

Ceres applauds the U.S. Securities and Exchange Commission (SEC) today on its adoption of a new rule that strengthens accuracy and reliability in the naming of investment funds. Specifically, the Investment Company Names rule requires investment firms to define the terms used in a fund’s name and disclose how that fund implements the strategy such terms imply.  

Also known as the Names Rule, it expands the scope of funds subject to an existing regulation that requires a fund to invest at least 80% of its assets in investments that are consistent with its label. While that regulation has only applied to fund names that suggest a certain type of investment, industry, or geography, the scope will now include words that suggest a particular investment focus or strategy, such as “sustainable”, “socially responsible”, “global”, or “growth”. The rule also revises the treatment of derivatives and expands fund disclosure, notice, and recordkeeping requirements.  

“As individual investors increasingly seek responsible investment options that consider climate risks, regulations that bolster investor confidence and prevent greenwashing are critical,” said Steven M. Rothstein, Managing Director of the Ceres Accelerator for Sustainable Capital Markets at Ceres. “The SEC’s new rule will help ensure truth-in-advertising for fund names and allow investors to make more informed decisions. We commend the SEC for its ongoing efforts to provide the market with consistent, decision-useful information.” 

The Names Rule was proposed in May 2022 alongside the Enhanced Disclosures by Certain Investment Advisers and Investment Companies about Environmental, Social, and Governance Investment Practices, which has not yet been finalized. Ceres submitted a comment letter addressing both proposals and a subsequent analysis of the comment file outlining support for the proposals with several recommended changes.  

While the Names Rule is not limited to addressing climate-related language and marketing, it will improve investor understanding of how funds that call themselves responsible are executing those strategies. The adoption of the Names Rule represents an important step forward in enhancing market transparency and trust.  

About Ceres   

Ceres is a nonprofit organization working with the most influential capital market leaders to solve the world’s greatest sustainability challenges. The Ceres Accelerator for Sustainable Capital Markets is a center of excellence within Ceres that aims to transform the practices and policies that govern capital markets to reduce the worst financial impacts of the climate crisis. It spurs action on climate change as a systemic financial risk—driving the large-scale behavior and systems change needed to achieve a net-zero emissions economy through key financial actors including investors, banks, and insurers. The Ceres Accelerator also works with corporate boards of directors on improving governance of climate change and other sustainability issues. For more information, visit ceres.org and ceres.org/accelerator and follow @CeresNews.