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Fund Managers Feel Heat in SEC Crackdown on Overblown ESG Labels

  • SEC sends letters to firms, signaling focus on greenwashing
  • Scrutiny prompts fears that industry may face sanctions
The U.S. Securities and Exchange Commission headquarters in Washington, D.C.

The U.S. Securities and Exchange Commission headquarters in Washington, D.C.

Photographer: Andrew Harrer/Bloomberg

U.S. regulators have long said they’re dubious about the green and socially conscious labels that Wall Street applies to $35 trillion in so-called sustainable assets. Now, the watchdogs are hunting for proof that they’re right.

For several months, Securities and Exchange Commission examiners have been demanding that money managers explain the standards they use for classifying funds as environmental, social and governance-focused, said people familiar with the matter. The review is the SEC’s second into possible ESG mislabeling since last year -- showing the issue is a priority for the agency and a reason for the industry to worry about a rash of enforcement actions.