Nearly 360 investment funds have retained ESG terms in their names while investing in companies that do not comply with Paris-aligned benchmark (PAB) criteria, one year after the European Securities and Markets Authority’s (ESMA) fund-naming guidelines came into force.
Analysis by NGOs Finanzwende, Urgewald and Facing Finance shows that of the €18bn in Paris-misaligned fossil fuel holdings identified in sustainability-named funds before the EU supervisor’s fund-naming guidelines, €13.2bn (around 73%) remained a year later.
The study analysed 14,114 SFDR Article 8 and Article 9 funds marketed in the EU.
The majority of this was driven by rebranding rather than portfolio change, according to the report. In total, 604 funds changed their names to avoid clashing with the EU watchdog’s stricter ESG/PAB exclusions.
This latest analysis comes after a study published by ESMA late last year, which claimed that fossil fuel holding changes suggest fund naming guidelines had been effective.
Earlier this year, ESMA published a second thematic note on “clear, fair and not misleading” sustainability-related claims, homing in on how asset managers describe ESG integration and exclusion strategies.
Among 1,258 ESI-named funds (funds using environmental, sustainability, or impact-related terms) that were non-compliant before the guidelines, the report identifies three responses: divestment, rebranding, and continued non-compliance.
The analysis found that just 293 funds kept their ESG names and divested PAB-critical fossil fuel holdings.
According to the authors’ calculations, a further 604 funds holding fossil fuel assets opted to change their names so that ESG/PAB exclusions no longer applied. However, 357 funds retained ESG terms in their names while still holding PAB-critical fossil exposures as of October 2025.
ESMA’s fund-naming rules, which came fully into force last May, require funds using language associated with six themes: transition, environment, social, governance, impact and sustainability, to invest at least 80% of their assets in line with the Sustainable Finance Disclosure Regulation (SFDR).
“Many providers simply renamed their funds so the minimum standards for fossil exclusions no longer applied”
In addition, ESMA guidelines prohibit funds using terms related to “environment”, “impact” or “sustainability” from investing in most companies undertaking activities linked to fossil fuels.
The report warns of a clear supervisory and enforcement challenge for national competent authorities under ESMA’s guidelines. “Many providers simply renamed their funds so the minimum standards for fossil exclusions no longer applied,” the authors said.
The analysis set out to assess the real-world impact of ESMA’s naming guidelines on funds using ESG terms, examining whether fossil fuel holdings declined and whether any reduction occurred through divestment or renaming. It finds that fossil assets worth €1.9bn remain in funds that still use sustainability-related terms in their names.
Regardless of whether the PAB exclusions are being ignored intentionally or unintentionally, “this calls for action by national supervisory authorities,” the authors said.
