The Securities and Exchange Commission has put forward two new proposals that aim to tighten the rules surrounding investment funds that prioritize environmental or social concerns.

The SEC is looking to bring more structure and uniformity to investment vehicles, such as exchange-traded funds and mutual funds, that tout an emphasis on following environmental, social, and governance standards. The push is part of a growing shift toward ESG in the finance world.

One proposal would increase disclosure requirements for ESG investment funds, while the other would broaden SEC rules governing fund names. The two proposals were approved for the public comment period by 3-1 votes, with the sole Republican on the commission dissenting in both cases. The proposals aim to prevent money managers from "greenwashing" investors who prioritize ESG.

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Greenwashing is when firms obfuscate the truth about what is in their investment vehicles in order to reap the benefits of the ESG label without following through (ESG-focused funds tend to have much higher fees than traditional index funds).

The SEC said the proposal regarding disclosures would help "promote consistent, comparable, and reliable information for investors" about how their funds and advisers incorporate ESG factors.

It would require advisers to provide more specific disclosures in fund prospectuses, annual reports, and adviser brochures based on how they pursue ESG strategies. For instance, funds that prioritize or focus on the environment would be required to disclose information about greenhouse gas emissions within their investment vehicles.

"ESG encompasses a wide variety of investments and strategies," said SEC Chairman Gary Gensler. "I think investors should be able to drill down to see what's under the hood of these strategies. This gets to the heart of the SEC's mission to protect investors, allowing them to allocate their capital efficiently and meet their needs."

The rule regarding fund names attempts to tighten rules preventing money managers from giving their funds an ESG label if it is not merited. In a statement, the SEC pointed out that what a fund is called can have a "significant impact" on investor decisions.

Current regulations stipulate that investment companies with names that suggest a focus on a particular type of investment must invest at least 80% of the assets in that fund to the investment type it describes. The new proposal would bolster existing regulations by requiring more funds to adopt an 80% investment policy.

It would broaden the current rules to include funds that indicate by their names that they are incorporating ESG factors.

"As the fund industry has developed, gaps in the current Names Rule may undermine investor protection," said Gensler. "In particular, some funds have claimed that the rule does not apply to them — even though their name suggests that investments are selected based on specific criteria or characteristics."

While the amount of assets invested in ESG funds has nearly tripled in just the past two years, the rules for their organization and composition are still all over the board.

For instance, one firm might only include companies that are already low-carbon users, while another might also include firms that still emit more carbon but have publicly pledged to reduce their net emissions.

The SEC's planned vote on the rules would trigger a public comment period that will last at least two months, and then the Democratic-controlled commission would decide if it will issue a final rule.

The American Securities Association welcomed the proposed rule changes.

"ASA supports efforts by the SEC to stop misleading and deceptive marketing gimmicks surrounding ESG funds," said ASA CEO Chris Iacovella. "While we have long-supported investor choice, it's appropriate for the SEC to further scrutinize ESG advertising, performance, and fees given the amount of capital being directed into these funds."

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This is not the only ESG-focused proposal that the SEC is currently mulling. The SEC previously voted to propose a rule compelling companies to disclose climate-related risks. The proposal says that companies must report direct and indirect greenhouse gas emissions. An outside party would then audit those reports.

While self-reporting of climate data is already commonplace among many companies, the SEC proposal, if approved, takes it a step further by requiring the practice and is seen as a form of indirect pressure on fossil fuel companies.