U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler said on Wednesday the regulator would consider rules to require "sustainable" fund managers to disclose the criteria and underlying data used to support the label.
Regulators and activists are becoming increasingly concerned that U.S. funds looking to cash in on the popularity of environmental, social and corporate governance (ESG) investing may be misleading shareholders over their products' underlying holdings, a practice known as "greenwashing."
Gensler told an SEC panel that the potential fund rules would complement new public company climate change risk disclosure requirements the agency plans to propose in October.
They would also aim to stamp out product mis-selling and establish standardized language around sustainable investing, Gensler told the SEC's Asset Management Advisory Committee.
"In investing, funds often disclose objective metrics as well," Gensler added. "When it comes to sustainability-related investing, though, there's currently a huge range of what asset managers might mean by certain terms or what criteria they use."
The SEC has previously said it would scrutinize investment advisers and funds touting sustainable products for greenwashing, but Gensler's remarks on Wednesday provided more details on how the agency would address the issue.
European regulators have introduced rules to tackle greenwashing but the United States lags behind. With a record $51 billion flooding into sustainable U.S. funds in 2020 alone, according to Morningstar, investors need to be better informed about what's in those funds, the SEC has said.
After Gensler spoke, the panel - which advocates on behalf of investors - voted to adopt recommendations including a call for mutual fund boards to share details about the race and gender of their members, and for the SEC to encourage companies to provide useful information on ESG matters.
No dissensions or abstentions were heard among committee members in the voice votes at the meeting, which was webcast, underscoring the broad industry support for the ideas.
Hester Peirce, a Republican member of the SEC, warned before the votes, however, that the SEC should not adopt rules that prove "unworkable and imprudent" and that requiring things like reporting ethnic data could be divisive.
This article originally appeared on Reuters.
