The U.S. money management industry has experienced a boom in recent years of firms touting their commitment to green investing and buying the shares of socially-responsible companies.
Now, the SEC wants to know whether money managers are engaging in false advertising by saying funds are devoted to doing good when the reality is much murkier.
At issue are so called ESG funds, which stands for environmental, social and governance investing. Sustainable mutual and ETFs had $137.3 billion of assets under management at the end of 2019, according to data compiled by Morningstar. While that total is less than 1% of the $20.7 trillion held in all U.S. mutual funds and ETFs, the space is growing fast, attracting an estimated $21.4 billion of new money last year.
In a Monday request for public comment, the SEC asked whether ESG products should have to follow existing rules that require a fund’s name to broadly match what it invests in. For instance, a fund that includes “stocks” in its name generally has to have at least 80% of its portfolio in equities.
The 20 top-performers are largely comprised of low-cost tech offerings.
Besides the ESG issue, the SEC also
On ESG, the SEC asked for comment on issues including whether:
- The rule for naming funds should apply to ESG or sustainable products?
- Investors are relying on these terms to understand funds’ strategies?
- There should be specific requirements that funds must adhere to in order to call their investments ESG or sustainable?
— Additional reporting by Emily Chasan and Tim Quinson