Most ESG Funds Rebrand Ahead of New EU Naming Rules, ESMA Finds

A significant share of European investment funds have overhauled their branding and strategies following tougher EU rules on sustainability-related fund names. According to a new study by European Securities and Markets Authority (ESMA), nearly two thirds of funds that previously used ESG or sustainability language in their names have changed how they present themselves to investors.

The findings come ahead of the May 2025 deadline for compliance with ESMA’s fund naming guidelines, finalised in May 2024. The rules were introduced amid rapid growth in ESG investing, as regulators sought to curb greenwashing and ensure that fund names accurately reflect underlying investment strategies.

 

Why the Rules Were Introduced

 

ESMA’s guidelines respond to a surge in demand for ESG-labelled products, which created incentives for asset managers to use sustainability-related terminology even when ESG integration was limited. The regulator’s objective was to tighten the link between what a fund is called and how it actually invests.

Under the new framework, funds using terms such as “ESG,” “sustainable,” “impact,” or environmental descriptors like “green” or “climate” must allocate at least 80 percent of their assets to investments aligned with the fund’s stated sustainability characteristics. These funds must also apply exclusion criteria consistent with Paris-Aligned Benchmarks.

A separate “transition” category was introduced for funds using language such as “progress,” “evolution,” or “transformation.” While these funds must also meet the 80 percent threshold, they are subject to the less restrictive Climate Transition Benchmark exclusions, allowing some exposure to companies with fossil fuel-related revenues.

 

Widespread Name Changes Across the Market

 

ESMA analysed 924 funds and found that 64 percent altered their names as the compliance deadline approached. Among those that rebranded, most opted for a decisive shift away from ESG language. Roughly six in ten removed sustainability-related terms altogether, while others switched to ESG labels with lower regulatory requirements, for example changing from “Sustainable” to “ESG.”

The study highlights differences by fund type. Actively managed funds were more likely to retain some form of ESG wording by moving to less demanding labels, whereas passive funds tracking indices tended to drop ESG terminology entirely.

 

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Rise of New, Ambiguous Terminology

 

One notable outcome of the new rules has been the emergence of alternative naming conventions. Around half of the funds that removed ESG terms replaced them with words such as “Scored,” “Screened,” “Select,” “Advanced,” or “Committed.”

ESMA flagged this trend as a potential supervisory challenge, noting that such language could still imply sustainability characteristics without being explicitly covered by the guidelines. The regulator indicated it will continue monitoring how sustainability-related terminology evolves in fund naming practices.

 

Investment Policies Also Shift

 

Rebranding was often accompanied by substantive changes to investment policies. More than half of the funds reviewed updated their policies following the release of the guidelines. Many added explicit exclusion criteria, revised minimum sustainability investment thresholds, or clarified screening methodologies used to assess ESG performance.

Active funds again accounted for the majority of these changes, reflecting a closer alignment between branding and portfolio construction as managers adjusted to the new regulatory environment.

 

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Reducing Greenwashing, Increasing Consistency

 

ESMA concluded that the guidelines are having their intended effect. Funds with weaker ESG strategies have largely removed sustainability language from their names, while those retaining ESG labels appear to be strengthening alignment between their names, policies, and portfolios.

According to the regulator, the overall result is greater consistency across the market and improved investor protection, as sustainability claims in fund names increasingly correspond to concrete investment practices rather than marketing positioning alone.

 

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