Fund managers have renamed at least 880 investment funds over the past year to remove references to environmental, social, and governance (ESG) themes, following the introduction of stricter EU rules on sustainability-related fund naming.
The changes come in response to new guidance from the European Securities and Markets Authority (ESMA), finalised in May 2024 and in force since November 2024. The rules aim to curb misleading or unsubstantiated claims around ESG investing, requiring stricter alignment between fund names and actual investment strategies.
Under the guidance, funds may only use terms such as “climate”, “impact”, or “sustainability” if their holdings align with Paris Agreement-aligned benchmarks. References to “social”, “governance”, or “transition” must also meet separate EU climate transition benchmark requirements, both of which align with the bloc’s green finance taxonomy.
Morningstar Sustainalytics reported that at least 880 alternative investment funds (AIFs) changed their names between May 2024 and May 2025 to comply with ESMA’s guidance. While the fund names changed, Sustainalytics noted that the underlying strategies remained largely unaffected. Only 12 funds reported minor adjustments to their investment approach.
“While fund managers report minimal impact, the lack of updated portfolio data may hinder investor analysis,” said Ronald Van Genderen, Senior Analyst at Morningstar. “As the situation evolves, investors should exercise caution and closely monitor potential changes to these funds’ actual investments in the coming months.”
In the UK, similar rules came into effect through the Financial Conduct Authority’s (FCA) Sustainability Disclosure Requirements (SDR). As of May, just 94 UK-domiciled funds had adopted one of the four available sustainability labels under the SDR regime, significantly fewer than the 216 initially forecasted.
Despite the slow uptake, the Investment Association noted that many firms believe the SDR has been effective in reducing misleading sustainability claims.
Separately, ESMA has published new thematic guidance this week, outlining four core principles for sustainability-related claims: accuracy, accessibility, substantiation, and timeliness. The guidance provides examples of good and poor practices and advises firms to avoid vague or exaggerated claims, whether related to their own operations, peers, or broader industry initiatives.
