On Wednesday, the Securities and Exchange Commission proposed two rules changes. prevent misleading or deceptive claimsU.S. Funds on the environmental, social, and corporate governance (ESG), qualifications. increase disclosure requirementsThese funds are available to you.

These proposals are open for public comment. They come amid growing concerns that funds looking to make a profit off the increase in ESG investment practices may have misled shareholders about what is in their holdings. This practice is known as “greenwashing.”

These guidelines would outline how ESG funds should market their names as well as investment methods. A proposal to update the Names Rule would include characteristics that are related to ESG.

According to the current Names Rule, 80% must reside in a specific class of investments if a fund name indicates it is focused, like government bonds. Changes to the Rules would allow “any fund name indicating that the fund is focused on investing in particular types of investments (or whose issuers are)” Funds with the word “ESG” would need to define this term, and ensure that at least 80% of their assets adhere to it.

Over the last two decades, a lot has been happening in capital markets. Gary Gensler (SEC Chair) stated that as the fund industry developed, the gaps in current Names Rule might undermine investor protection.

“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,” Gensler said. Today’s proposal will modernize today’s Names Rule in order to make it more applicable for today’s market.

According to Refinitiv Lipper data, global ESG funds received $649 billion of investments from Nov. 30 through 2021. This is an increase from the $542 billion invested in 2020 and $285 million in 2019. ESG funds now comprise about 10%Fund assets worldwide

Following broad guidelines that the SEC published in March, which required public companies to be publicly traded, greenwashing was addressed. to disclose how climate change risks affect their businessThey also provide additional information about the environmental impact of their activities and how it affects carbon emissions.

ESG encompasses many different strategies and investments. Gensler stated that investors should have the ability to look under these strategies to understand their true purpose. This is the core of the SEC’s mission, Gensler said. It allows investors to efficiently allocate capital and meets their needs.

Andrew Behar, president of the climate activist organization As You Sow, said the new Names rule will improve — but not stop — misleading labeling for investors.

The new rule recognizes that there is a problem, but it does not address the issue fully. Behar stated that investors still require clarity about the meanings of sustainable and terms such as ‘fossil free’, ‘low carbon’, and ‘ESG. It is crucial that the prospectus of a fund reflects its purpose and aligns with its holdings and name.

Rachel Curley (democratic advocate at Public Citizen) stated that SEC’s new fund portfolio rules would transform “green” investment.

Curley stated that retail investors are not able to see what it is like for them to put their money into a fund marketing claim it as’sustainable’, ‘green’, or ‘ESG’ in the marketplace. “The lack of transparency for investors makes it hard to untangle exactly how environmentally-friendly some of these products are.”

After publication in Federal Register, the proposals go into a 60 day public comment period during which investors, companies and others market participants may comment and propose changes.

— CNBC’s Thomas Franck contributed to this report.