The European Securities and Markets Authority (ESMA) has confirmed plans to review its ESG fund-naming rules.
In its latest annual work programme, published today, the supervisor laid out its priorities for 2027, which included a “review [of] the guidelines on funds’ names using ESG- or sustainability-related terms”.
Released in 2024, the guidelines ban words such as ‘green’ and ‘sustainable’ in fund names unless 80% of assets are invested in accordance with the EU’s Sustainable Finance Disclosures Regulation (SFDR).
Funds using terms such as ‘environmental’, ‘impact’ or ‘sustainability’ must follow exclusion criteria laid out in the EU’s Paris-aligned benchmarks regulation.
The rules, which prompted nearly 700 investment funds to rebrand last year, were created to give national supervisors a clearer steer on how to enforce against greenwashing – or firms attempting to look greener than they are in practice – in the investment industry, because the SFDR lacked definitions of what counts as ‘sustainable’.
However, the SFDR is now being overhauled to become a labelling regime, and that will include more rigid definitions.
ESMA said that, “in light of the outcome of the SFDR negotiations”, due to conclude by the end of the year, it will decide the future of its guidelines by the fourth quarter of 2027.
Many observers expect ESMA to ditch the guidelines altogether once SFDR 2.0 is finalised, so that investors have just one set of anti-greenwashing rules to follow.
In another document published today, ESMA said it will work with Europe’s pension and banking supervisors to prepare “for potential technical input on the consumer testing and (if requested by the Commission) a technical advice on the elements of the product categories and disclosures” under SFDR 2.0.
“To support the transition to the new SFDR framework, a revision of the existing Q&As will also be needed to address the phasing out of the existing disclosures,” it noted, adding that the supervisors may also work together on a “deprioritisation statement” for entity-level disclosures under the regulation.
On other sustainability topics, ESMA plans to publish its observations on how the market is using ESG data, transition finance and green bonds in the second half of 2027, and consult on new tagging rules for corporate sustainability statements
“Before the end of 2026, ESMA will provide technical advice to the Commission on simplification of the taxonomy disclosures,” it added.
“While the EU Taxonomy has been effective in channelling capital to sustainable investments, the reporting is still too complex,” the supervisor said.
“In line with the Commission’s call for advice, the focus of ESMA’s technical advice will be on targeted simplification proposals in relation to the operational expenditure [key performance indicators] and reduction of other sources of undue burden stemming from this reporting regime.”
