The Environmental, Social, and Governance (ESG) funds of Goldman Sachs (GS  ) are under investigation by the U.S. Securities and Exchange Commission (SEC), coming at a time of increasing concerns of "greenwashing" in the finance sector.

According to sources that spoke with the Wall Street Journal, the SEC is investigating Goldman Sachs' asset management arm for two of the four ESG funds that the investment titan currently offers. However, as federal regulations don't currently define ESG standards, the SEC will likely avoid attempting to determine how "green" the funds are, focusing instead on whether the funds get invested according to the policies advertised to clients. Both the SEC and Goldman Sachs have remained silent on the matter for the time being.

ESG funds such as Goldman Sachs' Future Planet Equity ETF (GSFP  ) are marketed as an "ethical" investment vehicle that only directs capital to companies that meet the environmental and social standards set for the fund. ESG funds have also been a target of accusations of "greenwashing" - presenting disinformation to attain an environmentally friendly image. Charges of greenwashing have only grown louder as regulators in the U.S. and Europe more closely scrutinize investments carrying an ESG label.

Last month, the SEC fined Bank of New York Mellon (BK  ) for misleading statements and omissions regarding the firm's ESG-labeled mutual funds. Just two weeks ago, German police raided the respective headquarters of DWS Group and Deutsche Bank (DB  ) in response to allegations of misrepresentation of ESG practices. The SEC also has open investigations probing misrepresentation by DWS and DB to American investors.

While U.S. federal law does not yet define an ESG standard, the SEC is taking steps in the direction of setting such a standard. In May, the regulator proposed enhancements to disclosure laws to "categorize certain types of ESG strategies broadly and require funds and advisers to provide more specific disclosures" in marketing and informational materials. Any such regulations are likely not to be implemented for some time.