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On Wednesday, the Securities and Exchange Commission (SEC) revised its “Name Rule” to curtail deceptive marketing strategies employed by US investment funds.

In a move aimed at halting the phenomenon known as “greenwashing,” where funds claim to be environmentally friendly without substantial backing, the SEC mandated that 80% of a fund’s portfolio should correspond with the asset promoted in its name.

This regulation emerges as a response to the proliferation of funds allegedly exploiting the surge in investor appetite for environmental, social, and governance (ESG) investments through false representation. Speaking about the essence of the modification, SEC chair Gary Gensler emphasized, “A fund’s investment portfolio should match a fund’s advertised investment focus,” and added that truthful advertising underpins the integrity of funds and aids investors.

This decision expands the SEC’s efforts initiated in 2021 to tackle ESG-related misconduct and “greenwashing” by executing enforcement measures and imposing penalties. Critics in the financial reform sector note that numerous popular funds may inadvertently promote fossil fuel production, contrary to their suggested ESG objectives, an issue aggravated by the frequent alterations in fund names.