SEC Chair Places 2023 ESG Fund Names Rule Under Review

US Securities and Exchange Commission Chair Paul Atkins has confirmed that the SEC is reviewing the 2023 amendments to the Names Rule, which require investment funds with names suggesting a focus on specific investment types, including ESG and sustainability terms, to invest at least 80% of assets in those investments. The review is the latest in a series of moves by the Atkins-led Commission to revisit Biden-era sustainable investing rules.

Atkins confirmed the review during testimony at a hearing by the US House Financial Services Committee, in response to questions about rules with significant operational and compliance implications for the fund industry. He did not provide details or timelines for the review. The 2023 Names Rule amendments were introduced under then-Chair Gary Gensler and focused heavily on ESG funds, with the Commission at the time citing the use of terms such as sustainable and green as presenting particular investor protection concerns.

The review follows other Atkins-era actions at the SEC targeting sustainable investing rules, including dropping the defence of new climate reporting rules and making it easier for companies to block shareholder proposals. Atkins has also announced plans to examine proxy advisory firms for their support of ESG initiatives. The broader context is a US regulatory environment where multiple agencies are scrutinising ESG-related requirements put in place under the previous administration.

If the SEC proceeds to amend or withdraw the Names Rule changes, it could reduce compliance costs for ESG fund managers but would also remove guardrails against greenwashing in the US fund market. The rule has been in effect since October 2023 and requires funds that changed their name to include ESG or sustainability terms to meet the 80% investment threshold or rename again. Atkins told the committee the Commission is reviewing rules that add costs to investors, with the goal of weeding out requirements not fit for purpose.

Key figure — 80% asset investment threshold