Skip to main content

SEC's Proposed Rule Changes Seek to Curb Greenwashing

Benjamin Mitchel

Photo of smokestack, greenwashingWe have previously written about the Securities and Exchange Commission (“SEC”) considering additional regulations on statements and disclosures made by public companies and investment funds relating to their credentials on Environmental, Social, & Governance (“ESG”) issues. In March, this topic was one of several we highlighted in a video podcast as a key climate change and resiliency issue to watch in 2022. Within weeks of the recording of that podcast, the SEC unveiled an expansive rules-based proposal that would require public companies to provide more information about their emissions and other metrics designed to show how the companies’ operations affect, and are affected by, the global climate.

Additional developments in May demonstrate that the discussion about regulation of ESG disclosures has only just begun. On May 23, the SEC charged BNY Mellon Investment Adviser for “misstatements and omissions about Environmental, Social, and Governance (ESG) considerations.” BNY Mellon agreed to pay a $1.5 million penalty to settle the charges, which is believed to be the first fine stemming from the work of the SEC’s ESG and Climate Task Force since its formation in March 2021.

In the same week it settled BNY Mellon’s charges, the SEC also proposed two new rule changes which would increase disclosure requirements and regulate misleading or deceptive claims by U.S. funds relating to their ESG credentials (commonly referred to as “greenwashing”). The first change pertains to the so-called "Fund Names Rule,” which requires funds with names that suggest they are focused on a particular class of investment to have at least 80% of their assets in that class. The proposed change would expand the number of investment funds that would be covered by the rule and thus that would have to invest at least 80% of their assets in investments tracking the class or classes suggested by their names. The other proposed change would mandate that registered investment companies and some advisers using ESG strategies provide additional information relating to ESG in their public statements and reports.

Greenwashing has become a problem of increasing social prominence over the last few years as companies and funds seek to capitalize on the emerging trend of ESG investment and, in some instances, overstate the extent to which their holdings are truly “green.” SEC Chair Gary Gensler indicated the recently proposed rule changes aimed at combatting greenwashing followed significant investor pressure for the actions the rules aim to take. As the SEC finds itself in a period of transition from considering action, to taking action, to enforcing the consequences of that action, it is critical that public companies and general counsel stay apprised of the latest developments. While the rule changes discussed herein remain proposals subject to public comment and further evaluation before they might ultimately be enacted, clearly, a new age of ESG regulation is coming.

YOU MIGHT ALSO LIKE
Blog September 28, 2022
In December 2021, Miami-Dade County released the final version of its Climate Action Strategy. This post serves as an update to describe the current projects and initiatives put in place as a result of the finalized Climate Action Strategy.
Blog July 2022
A recent letter addressed to the U.S. Treasury Secretary and a number of financial regulatory agencies, by the American Bankers Association and bank trade associations, demonstrates the growing intensity over the debate on the extent to which Environmental, Social and Governance (ESG) disclosures by...
Publication March 31, 2022
Miami-Dade County Mayor Daniella Levine Cava recently launched Connect 2 Protect, a multi-year initiative which aims to convert over 100,000 properties from septic systems to the County’s sewer system. Part of the County’s Climate Action Strategy, the roughly $4 billion effort reaffirms ...
VIEW MORE