By Douglas Gillison and Michelle Price

WASHINGTON (Reuters) -Wall Street's top regulator on Wednesday adopted a new rule cracking down on so-called "greenwashing" and other deceptive or misleading marketing practices by U.S. investment funds.

The changes to the two decades-old Securities and Exchange Commission (SEC) "Name Rule" requires that 80% of a fund's portfolio matches the asset advertised by its name.

It takes aim at a boom in funds that have tried to exploit investor interest in environmental, social and governance, or ESG, investing with names that do not accurately reflect its investments or strategies.

"A fund’s investment portfolio should match a fund’s advertised investment focus," SEC chair Gary Gensler said on Wednesday at a meeting to vote on the rule. "Such truth in advertising promotes fund integrity on behalf of fund investors."

The SEC since 2021 has also focused on prosecuting ESG-related misconduct and "greenwashing", bringing enforcement actions and levying fines.

Financial reform advocates say billions of dollars are now invested in popular funds that may actually support fossil fuel production and do not meet the ESG goals suggested by their names, which can change frequently.

The rule also targets funds with names suggesting a focus on particular characteristics, like "growth" and "value," or particular economic themes or investment strategies, such as artificial intelligence, big data, or health innovation.

Funds would also be required to define the terms they use and explain the criteria for selecting investments in their disclosures.

The 80% investment requirement currently applies to other fund characteristics such as risk. As a result of the change, 76% of investment funds would be subject to the "Names Rule" up from the current 60%, SEC officials said prior to the vote.

Trade organizations have attacked the proposal, first issued in May of last year, claiming its requirements would be impracticably subjective, cause confusion among investors, and encourage superficial judgments based solely on names.

"The rule sweeps more than three-quarters of all the funds in the U.S. into its dragnet, going far beyond ESG funds—the supposed root of the rulemaking—with no justification," Eric Pan, CEO of the Investment Company Institute, a major Washington funds group, said in a statement on Wednesday.

"The only thing that this rule achieves is to insert the SEC deeper into funds’ investment decision-making processes."

In a concession to industry, the change will allow 90 days, rather than the originally proposed 30, for corrective action if funds fall out of compliance with the 80% standard.

(Reporting by Douglas Gillison and Michelle Price; Editing by Sonali Paul and Timothy Gardner)