The Progressive


A project of Common Dreams

For Immediate Release

Patrick Davis, Public Citizen,
Gabby Brown, Sierra Club,
Carter Dougherty, Americans for Financial Reform Education Fund, 
Joe Rivano Barros, Action Center on Race and the Economy,

SEC Takes on Mutual Fund 'Greenwashing' with New Transparency Rules


As the Securities and Exchange Commission (SEC) closes a comment period on two proposed rules that would create a standard framework for funds classified as environmental, social, and governance (ESG), advocacy groups today called on the agency to adopt stricter standards for the fastest-growing investment asset sector in the world.

"Retail investors shouldn't have to waste their energy, time, and resources to find out whether the funds they are invested in are truly committed to workers' rights, climate resilience, or racial equity," said Natalia Renta, senior policy counsel for corporate governance and power at Americans for Financial Reform Education Fund. "Wall Street should honor investors' choices and goals, not use them as a tool to fleece their own clients."

Action Center on Race and the Economy (ACRE), Americans for Financial Reform Education Fund, Public Citizen, and the Sierra Club individually encouraged the SEC to keep or add a variety of provisions in the final rules--including preventing funds from using certain naming conventions unless that label reflects a major focus of the investment strategy. They also urged the SEC to stop corporate greenwashing of funds that invest in fossil fuels but tout ESG, and ensure funds either disclose their financed greenhouse gas emissions or state in their prospectus why they do not have that information.

"Many financial institutions use the current ESG framework to paint themselves as climate-friendly and collect money hand over fist from investors. Yet, they continue to invest billions in fossil fuels, showcasing how their actions fail to live up to their public commitments," said Jessye Waxman, senior campaign representative in the Sierra Club's Fossil-Free Finance campaign. "In the marketplace, measurement and disclosure drive transparency. Without key safeguards in place from the SEC, financial institutions will continue to mislead investors and greenwash their image."

The advocacy groups also collectively submitted comments on behalf of over 19,000 individuals and over 90 supporting organizations asking the SEC to better protect everyday investors.

"Maintaining fair, orderly, and efficient markets requires that investors have access to the data they need to make informed choices," said Rachel Curley, democracy advocate at Public Citizen. "Since the Great Depression, the SEC's role has been to ensure abuses and frauds are kept to a minimum. As ESG funds have exploded in popularity, the market is ripe for fraudsters looking to cash in on investors who want to follow their values. These new ESG rules from the SEC are simply the Commission doing its job."

Many of the groups' comments focused on the need for the SEC to better protect everyday investors and people managing their retirement funds and recognize the impacts to communities if these issues were to go unaddressed.

"The current state of ESG investing is broken, allowing for the farcical scenario in which a literal private prison company is counted as a 'responsible' ESG investment by the biggest asset manager in the world," said Cecilia Behgam, senior research analyst for climate and environmental justice at Action Center on Race and the Economy. "Our current rules mean companies that make surveillance technologies, manufacture chemicals that pollute our air and water, or imprison thousands of people across the country can be included in ESG funds by the Vanguards and BlackRocks of the world. It's deeply concerning for impacted communities and investors. Clearly, the SEC must strengthen these rules."

Among the recommendations from each group, there is a broad consensus for ESG policies that include the following:

  • Funds should not be allowed to use a name like "ESG," "Sustainable," or "Green" unless the label genuinely reflects a major focus of their investment strategy, and those funds should describe how they define those terms and their strategies, including how they engage with companies to improve their sustainability and what impacts they seek to achieve;
  • Environmentally-focused funds should disclose the full set of financed greenhouse gas (GHG) emissions, including Scopes 1, 2, and 3, without taking into account carbon offsets or credits;
  • ESG funds that do not have a strategy around GHG emissions should state so affirmatively in their prospectus;
  • ESG funds must strengthen disclosure of climate impacts caused by extractive and polluting industries in BIPOC and frontline communities;
  • Disclosure by ESG funds that invest in corporations with direct lines of business that rely on the prison system or policing of low-income and BIPOC communities must be strengthened;
  • Proxy voting disclosures should be made within a framework acknowledging that voting proxies in investors' best interest is part of the duty advisers owe their clients;
  • Derivatives should be calculated in a way that does not result in discrepancies between how the derivative and its underlying asset equivalent exposure are treated;
  • Investment advisers and companies must disclose how ESG screening tools are applied and assessed.

The full list of recommendations can be found in each organization's comment letter linked below.

"This regulation is a critical step to stop Wall Street fund managers from using misleading names like 'ESG,' 'green,' or 'socially responsible' to market products that are bad for the climate, workers, and communities," said Alex Martin, senior climate finance policy analyst at Americans for Financial Reform Education Fund. "Right now, most 'green' funds are not even Paris Agreement-aligned, and the worst offenders are loaded with fossil fuels. Without these rules, Wall Street will continue to get away with duping investors who want products that align with their needs and values."


  • Read ACRE's comment letter here.
  • Read Americans for Financial Reform Education Fund's comment letters here (individual) and here (coalition).
  • Read Public Citizen's comment letter here.
  • Read Sierra Club's comment letter here.
  • Read a petition signed by 19,390 supporters here.

Public Citizen is a nonprofit consumer advocacy organization that champions the public interest in the halls of power. We defend democracy, resist corporate power and work to ensure that government works for the people - not for big corporations. Founded in 1971, we now have 500,000 members and supporters throughout the country.

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