The U.S. Securities and Exchange Commission (SEC) has begun reviewing its 2023 amendments to the Investment Company Names Rule, a regulation designed to prevent misleading fund names and reduce the risk of greenwashing in ESG-focused investment products.

The move forms part of a broader reassessment of sustainability-related regulations in the United States, with the SEC also issuing new guidance through frequently asked questions and proposing amendments to reporting requirements under Form N-PORT.

 

Background: The Investment Company Names Rule

 

The Names Rule, formally known as Rule 35d-1 under the Investment Company Act of 1940, was originally introduced in 2001 to ensure that investment fund names accurately reflect their strategies.

Under the rule, funds whose names suggest a particular investment focus must allocate at least 80 percent of their assets to investments aligned with that focus.

As ESG investing expanded rapidly in the past decade, regulators raised concerns that some funds were using sustainability-related terminology in their names without meaningfully integrating ESG criteria into their investment strategies.

In response, the SEC adopted amendments to the Names Rule in 2023 extending the 80 percent investment requirement to funds whose names include ESG-related characteristics such as sustainability or impact.

 

Additional Reporting Requirements And Compliance Timelines

 

The 2023 amendments also expanded disclosure requirements through updates to Form N-PORT, the SEC’s monthly portfolio reporting framework used by registered investment companies.

The reporting changes were designed to capture additional information about funds’ compliance with the 80 percent investment policy and improve transparency around ESG-related investment strategies.

Originally, compliance deadlines were phased in between 2025 and 2026 depending on the size of fund groups. However, the SEC has now extended several reporting deadlines again.

Under the latest proposal, compliance deadlines for the updated Form N-PORT reporting requirements would be pushed to November 2027 for funds with more than $10 billion in assets and May 2028 for funds with smaller asset bases.

 

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New Guidance On ESG Fund Naming

 

Alongside the review, SEC staff released new FAQs clarifying how the Names Rule should be interpreted in practice.

The guidance addresses several technical issues related to ESG-related fund names and portfolio strategies. For example, minor compliance adjustments to a fund’s 80 percent policy will no longer automatically trigger the requirement to provide 60 days’ advance notice to shareholders.

The SEC also clarified how certain strategies and asset categories may count toward the 80 percent threshold, including situations where cash is held temporarily to meet unfunded investment commitments.

These clarifications aim to reduce administrative complexity while maintaining the rule’s core objective of preventing misleading fund naming practices.

 

Part Of A Broader ESG Regulatory Reassessment

 

The review of the Names Rule is part of a broader shift in U.S. regulatory policy around ESG investing.

Recent steps by the SEC include abandoning its defense of climate-related disclosure rules in court, disbanding its Climate and ESG Task Force in 2024 and increasing scrutiny of ESG-related market practices.

SEC Chair Paul Atkins has indicated that the agency is reassessing certain sustainability-related regulatory initiatives with the goal of reducing compliance costs and reporting burdens for financial firms.

 

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Diverging Global Approaches To ESG Fund Regulation

 

While the U.S. regulatory framework is being reassessed, other jurisdictions continue to strengthen ESG disclosure and labeling requirements.

In the European Union, the European Securities and Markets Authority has introduced guidelines requiring funds using ESG or sustainability terms in their names to maintain at least 80 percent alignment with those characteristics.

Similarly, the United Kingdom’s Financial Conduct Authority has introduced Sustainability Disclosure Requirements and anti-greenwashing rules to ensure sustainability claims in financial products are accurate and transparent.

 

Implications For ESG Fund Managers

 

The SEC’s review of the Names Rule highlights the evolving regulatory landscape surrounding ESG-focused investment products.

Although extended compliance timelines provide additional preparation time for asset managers, regulators continue to emphasize the importance of aligning fund names with actual investment strategies.

For fund managers operating across multiple jurisdictions, the regulatory environment may become increasingly complex as U.S. policies evolve while European and U.K. frameworks continue moving toward stricter sustainability disclosure and labeling requirements.