The Securities and Exchange Commission (SEC) is taking a hard look at companies’ environmental, social, and governance (ESG) claims as well as the related funds, meaning that investors looking to avoid potential controversies in the space may want to consider simple approaches.

Those include the SPDR S&P ESG ETF (EFIV). EFIV follows the S&P 500 ESG Index, which, in simple terms, applies a variety of ESG criteria to the traditional S&P 500 index. That straightforward methodology is relevant at a time when the SEC’s Division of Examinations is prioritizing elevated scrutiny on ESG labels.

“Central to the Division’s ESG Investing focus is the underlying concern that disclosures relating to ESG strategies or the incorporation of certain ESG criteria ‘could involve materially false and misleading statements or omissions, which can result in misinformed investors,’” according to law firm Vinson & Elkins.

Many ESG exchange traded funds are still relatively young in financial market terms. For its part, EFIV is three months away from its second birthday. That’s not an indictment, but it does underscore that in a new investing style, there’s bound to be fluidity, and the varying interpretations of what constitutes ESG has regulators concerned.

An obvious area of concern that EFIV largely avoids is greenwashing, or a company or fund issuer overstating its ESG credentials.

“Greenwashing is the provision of misleading or false information to consumers and/or investors that a company’s products or services are more environmentally friendly or focused than they really are. The lack of standardized terminology exacerbates the problem and leads to further investor confusion, even where a company is trying to be accurate,” adds Vinson & Elkins.

On a related note, the SEC is concerned about the various ways in which ESG is deployed, which is to say that regulators might want to see more uniformity in the space. How they can enforce that remains to be seen, but EFIV’s methodology is largely in line with what asset allocators expect from an ESG fund.

“By evaluating company practices, policies, procedures, disclosures, compliance, and controls with respect to ESG investing, companies can avoid greenwashing and maintain investor and consumer confidence,” concludes Vinson & Elkins.

One way of looking at that statement is that as more companies tend to their own ESG backyards, investors embracing funds such as EFIV stand to benefit.

For more news, information, and strategy, visit the ESG Channel.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.