In a recently released video, Securities and Exchange Commission (SEC) chairman Gary Gensler explains his concerns about investment products that market themselves as “green” or “sustainable.” According to Gensler, hundreds of funds managing trillions of dollars claim that their investments are serving some kind of environmental, social, or governance (ESG) goals beyond delivering returns to their clients. He wants these funds to be regulated in such a way that investors can trust those claims, but his own argument demonstrates how this will likely not be possible. When it comes to claims of environmental and social virtue, the investing public will be better off living with the inescapable ambiguity.
In the video, Gensler notes the SEC’s long history of regulating the names of investment funds, going back to the passage of the Investment Company Act of 1940. Gensler says that the goal of these rules is that “when a fund company uses a name, you should be able to read that name and trust what it says.” Then he goes on to make a relatable comparison: Investment funds should be like a carton of skim milk. When you go to the supermarket and you see a carton of milk on the shelf, you can trust that it is actually fat free, because food companies are required to print the fat content on the carton.
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