On May 13, 2024, a group of 21 Democratic Congressmen--4 Senators and 16 Representatives, as well as the D.C. Delegate--submitted a letter to SEC Chairman Gensler, urging him “to finalize an anti-greenwashing rule you proposed in May 2022,” which would “address[] greenwashing and other exaggerated or unfounded ESG-related claims amongst funds and investment advisers,” and would serve as “an important complement to ‘Investment Company Names,’ a rule the SEC finalized last September.” This proposed rule would, in effect, compel funds and investment advisers marketing services or products identified as ESG-related “to substantiate their ESG strategies and practices through disclosures.” The Democratic lawmakers highlighted certain arguments in favor of the rule, including that the lack of a rule “creates opportunities for greenwashing and other exaggerated or unfounded claims” and that “[i]nvestors need disclosures to know whether the ESG-branded and marketed services and investment products align with their investment needs, preferences, and expectations.”

Specifically, the letter to Gensler identifies certain “key elements” of the SEC's proposed rule, including “only allowing funds for which ESG factors are a significant or main consideration to use ESG language in their names,” “requiring engagement and proxy voting disclosures for certain funds,” and “requiring GHG emissions disclosure for certain funds.” From the perspective of these lawmakers, these aspects of the proposed rule--as well as “requiring or allowing disclosure of additional metrics that funds use to implement their ESG strategy”--are the core of the proposed regulation. This is unsurprising, as the disclosures identified above would enable more stringent anti-greenwashing measures to be adopted, whether by enforcement actions from the government or suits filed by private parties.

The significance of this letter is twofold. First, it applies greater pressure to SEC Chairman Gensler to promulgate this anti-greenwashing rule. (Earlier SEC rule-making with respect to climate-related questions often followed similar letters--sometimes with the very same individuals involved.) Second, the letter demonstrates the increasing pressure on the Biden Administration from the left wing of the Democratic Party (e.g., three members of the Squad signed the letter) to take dramatic and drastic action to address climate-related issues. Future developments in this space--especially whether Chairman Gensler issues the rule in question--should be monitored closely.