New Rules for Fund Names Take Aim at Greenwashing

June 14, 2024
The U.S. Securities and Exchange Commission recently expanded rules that require funds to invest the majority of their assets in investments that reflect the fund's name. Here's what to know.

In recent years, certain mutual funds and exchange-traded funds (ETFs) have labeled themselves as "green energy"—when in fact they included a preponderance of fossil fuel companies among their holdings.

In response, the U.S. Securities and Exchange Commission (SEC) has amended its Names Rule, which mandates that funds whose names mention specific investments, industries, or geographies invest at least 80% of their assets in such holdings. The newly broadened rule now also applies to investing themes, such as clean energy and robotics, as well as particular investment characteristics, such as growth and value.

"Prior to the rule change, these types of funds didn't have any restrictions on what they owned," says Michael Iachini, CFA®, CFP®, head of manager research at the Schwab Center for Financial Research. "Now, they'll need to meet the investment requirements that many other funds have followed for decades, providing greater transparency for investors."

Fund groups with net assets of $1 billion or more have until November 2025 to comply with the new rule, while those with less than $1 billion in assets have until May 2026. Once in compliance, funds must review their holdings quarterly and correct any identified issues—for example, if investment performance has caused their allocations to drift—within 90 days.

"Despite the increased protections, investors should still do their homework when researching mutual funds or ETFs," Michael says. "The fund's name may help you winnow your list of prospective investments, but it's important to ensure the fund's holdings align with your expectations, goals, and overall portfolio mix."

Discover more from Onward

Onward magazine print issues next to a laptop showing the Onward hub
latest issue online or view the print edition." role="dialog" aria-label="

Keep reading the latest issue online or view the print edition.

" id="body_disclosure--media_disclosure--241611" >

Keep reading the latest issue online or view the print edition.

Investors should consider carefully information contained in the prospectus, or if available, the summary prospectus, including investment objectives, risks, charges, and expenses. You can request a prospectus by calling 800-435-4000. Please read the prospectus carefully before investing.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

Investing involves risk, including loss of principal.

The information and content provided herein is general in nature and is for informational purposes only. It is not intended, and should not be construed, as a specific recommendation, individualized tax, legal, or investment advice. Tax laws are subject to change, either prospectively or retroactively. Where specific advice is necessary or appropriate, individuals should contact their own professional tax and investment advisors or other professionals (CPA, Financial Planner, Investment Manager) to help answer questions about specific situations or needs prior to taking any action based upon this information.

All names and market data shown above are for illustrative purposes only and are not a recommendation, offer to sell, or a solicitation of an offer to buy any security. Supporting documentation for any claims or statistical information is available upon request.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.