June 18, 2020

SEC “Names Rule” Review Includes ESG Funds

Thomas A. Utzinger

On March 2, 2020, the U.S. Securities and Exchange Commission (SEC or Commission) issued a Request for Comment on the framework for addressing names of registered investment companies and business development companies (SEC Request). The SEC Request, subsequently published in the Federal Register on March 6, 2020, represents an effort “to improve the investor experience and modernize current regulatory approaches.” While requirements exist under the Investment Company Act of 1940 to protect investors from misleading fund names, the Commission has not updated its “Names Rule” since 2001. In that time, the investment fund industry has become more complex, and funds committed to sustainability, social impact, and environmental, social, and governance (ESG) objectives (collectively, ESG Funds) are markedly on the rise. Accordingly, the SEC Request sets forth questions related to ESG Fund naming practices. It is unlikely, however, that any updated rule would dramatically affect current ESG Fund naming practices unless commenters expose serious and widespread issues with these investment vehicles.

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