By Katanga Johnson and Ross Kerber

WASHINGTON/BOSTON, (Reuters) – The U.S. Securities and Exchange Commission will present rule changes on Wednesday to eliminate unfounded claims made by funds regarding their corporate governance, environmental, and social credentials (ESG). It also aims to standardize disclosures.

People who spoke with the SEC regarding the measure believe that the proposal will define how ESG fund marketing should work and what investment advisors need to disclose when labeling funds.

According to people, this proposal would mandate that investments funds that have terms such as “ESG”, sustainable” or low-carbon in their names reveal the criteria and supporting data.

Although the rules apply to all funds, they are primarily targeting ESG funds. They drew an unprecedented $649 Billion globally between Nov. 30 and 2020, up from $542Billion and $285B in 2019, according to Refinitiv Lipper data.

Regulators have raised concerns that U.S. funds trying to capitalise on ESG investing might be mislead investors about their product underlying holdings. This practice is known as “greenwashing”.

“We hope that fund managers can be forced to comply with basic naming guidelines by the new rule,” said Andrew Behar, president of As You Sow. Andrew Behar (president of As You Sow), a climate activist group, said that this will eliminate misinformation and confusion in marketing. He has already discussed potential rules with SEC.

He stated that market participants had to exploit a loophole within the existing rules in order to name funds.

SEC Chair Gary Gensler has said that when it comes to sustainability-related investing, asset managers might confuse investors with conflicting names or certain terms or criteria they use.

However, industry groups are concerned that ESG label standardization by the agency could limit investor choices.

Janay Rickwalder spoke out for the Investment Adviser Association. She said that they object to any actions that could… replace a regulator’s judgement about investment strategy with that of professional fiduciaries.