SEC Initiates Review of ESG Fund Names Rule

The U.S. Securities and Exchange Commission (SEC) adopted Rule 35d-1 under the Investment Company Act of 1940 regarding Investment Company Names (the Names Rule) in 2001 to prevent fund names from being materially deceptive or misleading to investors. The rule requires fund names that suggest a focus on a particular type of investment, industry or geographic region to adopt a policy to invest at least 80 percent of their assets in investments consistent with that focus.

As environmental, social and governance (ESG) investment strategies rose to prominence in the following decades, regulators raised concerns regarding overstating or mischaracterizing the role ESG considerations played in portfolio decisions – a practice commonly referred to as "greenwashing."

In March 2020, the SEC invited public comment on the applicability of the Names Rule to ESG funds. Subsequently, the SEC adopted final amendments to the Names Rule in September 2023, extending the 80 percent investment policy to funds whose names suggest investments with "particular characteristics," affirmatively subjecting ESG or sustainability funds to the Names Rule (2023 Amendment). 17 C.F.R. § 270.35d-1(a)(2)(i).

Further, in connection with the 2023 Amendment, the SEC revised Form N-PORT, its monthly portfolio-holdings report, to capture additional information regarding funds' 80 percent investment policies and related compliance. In 2024, the SEC adopted further amendments to Form N-PORT, requiring more frequent filing and publication of the reports.  

Initially, the SEC provided a phased compliance period, making the amended Names Rule enforceable for fund groups with at least $1 billion in assets by December 11, 2025, and by June 11, 2026, for fund groups with less than $1 billion in assets. In March 2025, the SEC pushed the compliance deadlines to June 11, 2026, for fund groups with more than $1 billion in net assets and December 11, 2026, for fund groups with less than $1 billion in assets.

Global Context

The 2023 Amendment reflected a broader global regulatory trend toward heightened scrutiny of ESG- and sustainability‑related funds. Regulators in the European Union and United Kingdom have undertaken parallel initiatives designed to ensure that fund names accurately reflect their underlying investment strategies and are not misleading to investors.

In the EU, the European Securities and Markets Authority (ESMA) has adopted guidelines requiring funds that use ESG, sustainability or impact‑related terms in their names to invest at least 80 percent of their assets in accordance with those characteristics, subject to additional exclusionary criteria for certain terms.

Similarly, in the U.K., the Financial Conduct Authority's (FCA) Sustainability Disclosure Requirements (SDR) and accompanying anti‑greenwashing rule¹ impose constraints on the use of sustainability‑related labels and marketing claims, requiring that such claims be fair, clear and not misleading and that labeled funds meet prescribed criteria tied to their stated sustainability objectives.

Recent SEC Action

As part of a broader critique of regulatory overreach expressed during a February 11, 2026, hearing before the U.S. House of Representatives Committee on Financial Services, SEC Chair Paul Atkins indicated that the SEC intends to review the 2023 Amendment with an eye toward reducing unnecessary reporting burdens.

On February 18, 2026, SEC staff published four FAQs related to the Names Rule. The FAQs clarify that:

• Minor, compliance‑driven tweaks to a nonfundamental 80 percent policy don't trigger the need for a 60 days' shareholder notice.
• Cash held to meet unfunded commitments to private funds or a special purchase vehicle (SPV) can count toward the 80 percent bucket if the underlying investment qualifies and the approach is disclosed.
• Although "growth" and "value" usually trigger an 80 percent policy, they don't when clearly paired with a modifier showing they aren't the fund's main focus (such as growth income).
• "Merger" or "merger arbitrage" describes a strategy or outcome and, by themselves, don't require an 80 percent policy.

In addition, on February 18, 2026, SEC further extended the compliance deadlines for the Form N-PORT reporting requirements associated with the Names Rule to November 17, 2027, for companies with more than $10 billion in assets and May 18, 2028, for companies with less than $10 billion in net assets in connection with proposed amendments to the form.

The proposed amendments to Form N-PORT reporting were published in the Federal Register on February 23, 2026. The proposal scales back 2024 Form N-PORT amendments by giving registered funds an extra 15 days to file monthly reports and removing or streamlining certain reporting items while restoring quarterly public disclosure in order to reduce reporting burdens without materially affecting regulatory oversight or investor transparency. Public comments may be submitted on or before April 24, 2026.

The SEC's recent actions are part of its broader reconsideration of initiatives related to sustainable investing from the Biden Administration, including ceasing defense of the Climate-Related Disclosure Rules and announcing its plan to examine proxy voting firms for their support of ESG initiatives. The reconsideration is driven not only by concerns surrounding ESG-related regulation, but also by a broader objective of reducing compliance costs and reporting burdens. The SEC's deregulatory stance regarding ESG matters in particular arguably began during the latter part of the Biden Administration with the 2024 disbanding of its Climate and ESG Task Force.² The SEC had originally created the task force within the Division of Enforcement in 2021 with the appointment of a senior policy advisor for climate and ESG.

Conclusion and Next Steps

The SEC's reconsideration of the 2023 Amendment to the Names Rule, new FAQs and proposed amendments to Form N-PORT highlight the evolving regulatory landscape for ESG- and sustainability-related funds. Though recent extensions for compliance with Form N-PORT reporting requirements associated with the Names Rule provide additional time, they do not eliminate the need for careful review of fund names to prevent greenwashing claims. Funds operating across jurisdictions may also face increasing complexity as U.S. requirements continue to evolve amid efforts to streamline or roll back certain regulatory obligations and parallel regimes in the EU and U.K. continue toward more prescriptive sustainable finance frameworks.

Holland & Knight attorneys are monitoring the status of the Names Rule and its impact on the regulated community. Contact the authors with any questions or for assistance in assessing greenwashing risk, preparing for compliance and navigating cross‑border considerations.

Notes

¹ Fin. Conduct Auth., "Sustainability Disclosure Requirements (SDR) and Investment Labels (Policy Statement PS23/16, Dec. 13, 2023)"; see also FCA ESG Sourcebook ESG 4.3.2R–4.3.10R (naming and marketing rules); FCA Guidance FG24/3 (anti‑greenwashing rule).

² Thomson Reuters, "SEC Disbands Climate and ESG Taskforce" (Sept. 24, 2024).

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