As green financing has exploded in popularity, it could be getting a closer look from the Securities and Exchange Commission.

In testimony before the Senate Committee on Banking, Housing and Urban Affairs on Sept. 14, SEC Chair Gary Gensler said he has asked his staff to "consider ways to determine what information stands behind" claims made by investment funds labeling themselves as green or sustainability-focused. Gensler also said that the relative sustainability of individual companies is critical information to investors in a July webinar reported by GlobeSt.

Investments based on environmental sustainability criteria have never been more popular. Well over $75B in corporate sustainability-based loans have been issued this year, more than five times the previous high set in 2019, according to data from Dealogic reported by The Wall Street Journal. So-called green bonds or green loans have lower interest rates if the borrowers hit agreed-upon metrics for emissions reduction or other environmental targets.

Real estate has become easily the most prolific user of green bonds and loans, to the point that investors seeking to focus on sustainability may not be able to diversify across sectors the way that traditional debt investors do, Bloomberg reports. The two biggest issuers of green bonds in U.S. commercial real estate this year have been Boston Properties and Equinix.

In the U.S. and elsewhere, a lack of government oversight regarding the standards set by issuers of green bonds or borrowers of green loans has resulted in dependence on private third parties such as LEED or BREEAM. When green financing is used to fund new construction, while the resulting product may be energy efficient, construction itself is likely real estate's biggest negative factor in terms of environmental impact, Bloomberg reports.

Though observers don't expect any SEC regulations to specifically affect how real estate companies make their projects more environmentally sustainable, they could provide a more specific framework for how investors in green financing can evaluate borrowers' claims, GlobeSt reports.