Two-Thirds of ESG Funds Changed Names After EU Sustainable Fund Naming Rules

Approximately 64% of funds with ESG or sustainability-related terms in their names changed those names ahead of a May 2025 compliance deadline for new EU fund naming guidelines, with 61% of funds that changed their names removing all ESG terms, according to a new European Securities and Markets Authority (ESMA) study. Around half of funds dropping ESG terms replaced them with alternative language including Scored, Screened, Select, Advanced or Committed.

ESMA's guidelines, finalised in May 2024, require funds using sustainability-related terms including ESG, green, environmental and climate to have at least 80% of assets in investments meeting the fund's sustainability characteristics and to follow Paris Aligned Benchmark exclusion criteria. A separate transition category with less stringent Climate Transition Benchmark exclusions was introduced to enable investment in companies deriving part of revenues from fossil fuels. The ESMA study examined a sample of 924 funds, finding that 21% of those that changed names moved to ESG terms with less stringent criteria rather than dropping sustainability language entirely.

The significant scale of fund name changes and policy updates in response to ESMA's guidelines illustrates the concrete market impact of sustainability fund labelling regulation on asset managers' portfolio construction and investor communications strategies. The emergence of new non-standard terminology such as Screened and Select to replace regulated ESG terms has already prompted ESMA to announce monitoring of evolving sustainability-related terminology in fund names. For India's mutual fund sector, where SEBI has implemented its own sustainability fund category requirements, the European experience provides a reference point for anticipating how fund managers and investors respond to regulatory labelling standards.

The study found that more than half of the sample (56%) updated their investment policies following the guidelines' release, with 475 funds adding explicit exclusion references and 179 funds updating minimum investment thresholds. ESMA said the guidelines drove convergence in the use of ESG terms, improved alignment of fund names with investment strategies, and reduced greenwashing risks by encouraging less ambitious ESG strategies to remove ESG terms from names. ESMA will monitor evolving sustainability-related terminology in fund names and may consider further regulatory action if alternative terms are used to signal ESG features without meeting the standard's requirements.

Key figure — 64% of ESG-named funds changed names