Hundreds of ESG funds renamed as ESMA guidelines kick in

Nearly 700 investment funds have had their names changed to avoid falling foul of new sustainability rules from the European Securities and Markets Authority (ESMA).

NGOs Finanzwende, Urgewald and Facing Finance have found that 674 funds were rebranded to stay on the right side of the EU supervisor’s fund-naming guidelines, which came into force fully last week.

The rules require funds that use language associated with six themes (transition, environment, social, governance, impact and sustainability) to invest at least 80% of their assets in accordance with the Sustainable Finance Disclosure Regulation (SFDR).

They must also adopt blanket environmental and social exclusions, which vary in ambition depending on the type of word used.

The latest research found that, ahead of last week’s deadline, State Street renamed 56% of its relevant funds, and USB and Northern Trust both renamed around half.

In absolute terms, BlackRock Asset Management renamed the greatest number of products, at 69, according to the research.

“There are hundreds of funds that must have implemented the fossil fuel exclusions by May 2025 due to their name”

Finanzwende, Urgewald and Facing Finance

Some funds had the relevant words completely removed from their names, while others downgraded to those covered by ESMA’s less-strict regulatory category, such as ‘transition’.

“The terms ‘sustainable’ and ‘ESG’ are now used much less frequently in fund names,” the NGOs observed, noting that 232 funds now promise just “screening”, “selection”, “solutions” or “commitments” instead.

“Although these terms were already in use before the guidelines were introduced, they appeared much less frequently and often in combination with clearly sustainability-related terms such as ‘ESG’,” they noted.

“This often turns a ‘screened ESG’ fund into a pure ‘screened’ fund – and therefore one to which the new requirements do not apply.”

Among those new requirements, the research focused on the fact that the ESMA guidelines ban funds using terms related to ‘environment’, ‘impact’ or ‘sustainability’ from investing in most companies undertaking activities linked to fossil fuels.

In March, the campaign groups identified more than 2,000 funds that would contravene that requirement once the new rules came into force.

“While at least 427 funds that were invested in fossil fuels according to the latest data can continue to invest in fossil fuels by changing their name, there are hundreds of funds that must have implemented the fossil fuel exclusions by May 2025 due to their name,” said Finanzwende, Urgewald and Facing Finance.

According to their calculations, up to €22bn of fossil fuel securities must therefore have been sold before the May deadline.

The trend for using some of the softer language associated with ESG investing instead of ditching the terminology completely “indicates that asset managers still want to appeal to sustainability-oriented consumers without having to implement the fossil fuel exclusions,” concluded the research.

“Therefore, it is now up to the national supervisory authorities to systematically check whether the newly chosen, weaker terms are ‘fair, clear and not misleading’,” it said.

“If not, those names would violate applicable consumer law quite independently of the ESMA guidelines because they mislead private investors.”