ESMA reviews ESG fund-naming guidelines requiring 80% threshold

The European Securities and Markets Authority released a December 2025 risk analysis of its guidelines on ESG and sustainability terms in fund names, which require at least 80% of holdings to meet environmental or social characteristics. The standards illustrate the data-driven anti-greenwashing benchmarks that Indian asset managers selling into or modelling on EU markets will increasingly face.

ESMA released a December 2025 risk analysis of its Guidelines on ESG or sustainability-related terms in fund names, evaluating their impact on the European investment landscape. The guidelines introduce a quantitative threshold: any fund using ESG or sustainability terms must ensure at least 80% of investments meet environmental or social characteristics. Funds using sustainability-related terms must invest "meaningfully" in sustainable investments as defined by the Sustainable Finance Disclosure Regulation, shifting naming from broad marketing claims to data-driven portfolio alignment.

The guidelines affect European asset managers and the funds they market to institutional and retail investors. ESMA estimates approximately 1,600 existing funds fall within scope, with managers already renaming products or adjusting holdings to comply with the 80% threshold. Funds with environmental or sustainability-related names must also apply Paris-Aligned Benchmark exclusions targeting controversial weapons, tobacco and significant fossil fuel activities. National Competent Authorities are supervising these transitions to ensure uniform application across jurisdictions.

Asset managers should confirm portfolios meet the 80% threshold and apply required PAB exclusions, with new funds complying immediately on launch while existing funds were granted a transition period to align holdings. Managers should monitor NCA supervision and ensure fund names are not misleading to retail investors. For firms benchmarking against EU practice, the move from voluntary marketing to strict regulatory oversight signals where high-integrity naming standards are heading globally.

Key figure — Portfolio threshold: at least 80% of holdings must meet ESG characteristics