The SEC has announced new disclosure rules surrounding the names of funds and what they carry that relates particularly to environmental, social, and governance funds. These new proposals could mean big shakeups for the industry, and Todd Rosenbluth, head of research at VettaFi, recently discussed the implications on Yahoo Finance.

ESG has remained a muddied and confusing label within the U.S., where there are currently no regulations, and companies and indexes can utilize different data and metrics to measure their definition of ESG. Rosenbluth explained that the ETF structure generally allows investors to actually get under the hood and compare what holdings the fund has compared to indexes and otherwise. Having this kind of awareness is doubly important within funds like ESG-focused ones.

“The name, which is what the SEC is focusing on, doesn’t tell you the whole story; the underlying holdings do. You have to dig inside the portfolio and understand the rules and understand what is and is not inside various ESG products,” Rosenbluth said.

The new proposed SEC rules could help provide some clarity to ESG investment in the U.S. and allow investors to better understand what they own and also how companies stack up against ESG principles. It’s something that’s been in the news of late with the removal of Tesla from the S&P 500 ESG index due to issues with its social and governance practices.

“When we were talking with advisors this week at VettaFi, we heard that people are looking to have a cleaner part of their portfolio. They think of ESG as being a way to solve that problem; in fact, it’s only solving part of that problem,” Rosenbluth explained.

ESG investment doesn’t necessarily mean divestment, something that can be of particular note at a time when the energy sector is outperforming. Funds like the SPDR S&P 500 ESG ETF (EFIV) broadly diversify across sectors, including allocations within energy.

There are several ways to approach investing in ESG currently, with funds like the iShares ESG Advanced MSCI USA ETF (USXF) that offer concentrated investment in what Rosenbluth coins the “superstars” within ESG, compared to the iShares ESG Aware MSCI USA ETF (ESGU), which invests more broadly in ESG focused companies while removing the worst offenders from each industry.

Speaking to the flows into ESG funds, Rosenbluth explained that “we continue to see that there’s been demand globally for ESG products,” but because the broader markets are down, fewer investors are putting new money into these kinds of allocations.

“We’re seeing investors focused on the broader core products than the more ESG-oriented ETFs,” Rosenbluth said.

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