FAT-FREE INVESTING — What does your mutual fund have in common with fat-free milk?

Securities and Exchange Commission Chair Gary Gensler asked that question back in March, when he wondered aloud whether funds that tout their environmental, social and governance cred are as green or socially conscious as they claim.

He called for the equivalent of nutrition labeling for investing. On Wednesday, the SEC will publish those labeling rules as it attempts to rein in greenwashing.

No one we know has seen the proposal, but if the commission’s meeting agenda is any guide, it will aim to standardize ESG disclosures to help investors who want to align their money with their own social and environmental agendas.

“That word — standardized — is the most important word on the agenda,” said Michael McGrath, a Boston-based law partner at K&L Gates. It’s a clue, he said, that the SEC might be establishing labels or categories for funds that could make it easier for rank-and-file investors to know what they’re investing in.

But wait — the SEC already has a law for that sort of thing. It’s called the Investment Advisers Act of 1940, and the agency cited it Monday when it announced a $1.5 million fine against BNY Mellon Investment Adviser for making misleading statements about ESG funds.

BNY had said that all investments in its ESG funds had undergone a quality review, which proved not to be the case. The firm has updated its materials and will pay the fine. It’s the first time the SEC has settled an ESG case.

The SEC and the Justice Department also are investigating Deutsche Bank AG’s asset-management arm after its former head of sustainability said the division exaggerated its ESG bona fides.

So why is this new rule important? Gensler has power to go after fraudsters, but he also wants to make investing safer for people who don’t get the inner workings of Wall Street.

Retail investors…

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