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September 20, 2023

SEC’s Strong Enhancements to “Names Rule” Will Protect Investors from Greenwashing

WASHINGTON, D.C.—On Wednesday, September 20, the U.S. Securities and Exchange Commission (SEC) modernized its  rules governing investment company names  that are likely to mislead investors in mutual funds, ETFs, and other offerings about the fund’s investments and risks. Better Markets’ Legal Director and Securities Specialist Stephen Hall released the following statement following the Commission’s vote on these critical reforms:

“The SEC’s names rule will help prevent funds from misleading investors with baseless if not false claims about ESG, climate, and sustainability. This long overdue modernization of the Names Rule is particularly relevant today as investors seek to invest in mutual funds and ETFs that focus on ESG and sustainability. We applaud the SEC for adopting a strong final rule.  It will benefit all investors, while also resisting the often baseless arguments by the funds that seek to greenwash their investment products by including terms such as ’ESG’ and ’Sustainable’ in their names to attract investors, without changing the investment policy of the fund.

“The ‘Names Rule’ is a core investor protection disclosure rule, especially in today’s evolving financial markets, and recent trends prove the point.  In one example highlighted in our comment letter, an investment company that averaged net inflows of $78 million over a five-year period suddenly saw net flows swell to more than $500 million over the course of the next two years after it changed its name twice to include the terms ‘ESG’ and ‘sustainable.’”

Below is a summary of the key provisions and why this reform is important:

  • INVESTORS OFTEN RELY ON A FUND’S NAME WHEN MAKING INVESTMENT DECISIONS. The Names Rule has ensured that investment fund names are not materially misleading or deceptive. That means investors seeking to invest in an investment fund whose name suggests a focus on a popular index or type of investment can be sure those funds are invested in a manner that is consistent with what the name suggests. The reforms the SEC adopted today will ensure that labels suggesting certain investment characteristics such as ‘ESG’ and ‘sustainable’ are covered by the Names Rule’s 80% investment requirement. This is particularly important because as investor demand has increased for funds that invest in ESG or sustainability options, investment companies have drastically increased the number of funds that include those terms in their fund names to capitalize on the increasing demand. That means more inflows and also higher fees for the funds.  This has led to some investment companies engaging in ‘greenwashing’ by including specific terms in their fund’s name that do not accurately reflect the investment policy of the fund.
  • MORE DISCLOSURE AND RECORDKEEPING REQUIREMENTS. These reforms will require enhanced disclosures about how the fund name aligns with the fund’s investment policy, and they will require disclosure in the fund prospectus as to how the fund defines the terms in its name.  They also establish recordkeeping requirements demonstrating how funds comply with the rule.
  • SHAREHOLDERS IN UNLISTED CLOSED-END FUNDS AND BDCS MUST VOTE TO CHANGE INVESTMENT POLICY. The rule would generally require investors in unlisted closed-end funds and business development companies (BDCs) to affirmatively vote in favor of changes to the 80% investment policy of the fund or conduct a tender offer or repurchase offer of those shares in advance of the investment policy change. This requirement will ensure that investors in less liquid, unlisted funds can prevent the investment company from changing the investment policy of the fund after investors have already committed money to the fund, without a shareholder vote. This is important for investors in unlisted closed-end funds and BDCs because there are more limited options to sell their shares if they disagree with the change in investment policy.”

Learn more in our comment letter.


Better Markets is a non-profit, non-partisan, and independent organization founded to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit

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