The double-edged sword of naming names in sustainable funds

SEC’s expanded Names Rule helps investors but still allows wide interpretation

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(Mark Hulbert, an author and longtime investment columnist, is the founder of the Hulbert Financial Digest; his Hulbert Ratings audits investment newsletter returns.)

CHAPEL HILL, N.C. (Callaway Climate Insights) — The SEC’s beefed up “Names Rule,” adopted a year ago, is a double-edged sword for climate-focused investors.

The Names Rule — 35d-1 of the Investment Company Act of 1940, to be exact — requires that ETFs and mutual funds “whose names suggest a focus in a particular type of investment… invest at least 80% of the value of their assets in those investments,” to quote the SEC. The amendments to the rule that the SEC adopted in September 2023 expand the type of funds that must comply with this 80% requirement — specifically including those with “ESG” (or close synonyms such as “sustainable,” “green” or “socially responsible”) in their names, marketing literature or prospectuses.