In the face of growing concerns about greenwashing, European regulators adopted guidance on investment funds using sustainability-related words in their names — and new research finds that funds have responded to that guidance, either by changing their names or adjusting their portfolios to better match their names.
On Wednesday, the European Securities and Markets Authority (ESMA) published the results of a review that examined the impact of its guidance on fund naming for ESG and sustainability-related terminology that was introduced in May 2024 to address concerns about greenwashing based on a disconnect between funds’ names and the contents of their portfolios.
The review looked at 1,000 notices to fund shareholders in the wake of the regulator’s guidance by 25 of the largest asset managers with a combined €7.5 trillion in assets under management (AUM).
Among other things, it found that 64% of those funds changed their names, often to avoid the use of ESG-related terms; and that 56% updated their investment policies, “to strengthen their sustainability focus,” ESMA’s report said.
Additionally, the study focused on the impact on funds’ fossil fuel exposures at funds with €2 trillion in total AUM, revealing that funds with higher exposures “were more likely to remove ESG terms from their names, underscoring how portfolio composition influences compliance choices.”
At the same time, funds that didn’t change their names reduced their exposure to fossil fuel holdings more than all other funds — highlighting “efforts to green their portfolios,” the regulator said.
“This suggests that the intended signal sent to the fund community was effective, with increased efforts among funds retaining ESG terms in their names to green their portfolios and improve alignment with the signal conveyed by their names,” the report said.
The increased alignment between fund names and their portfolios has reduced greenwashing risks, bolstered investor protection and enhanced confidence in the sustainable finance sector, ESMA noted.
Looking ahead, the regulator said it “remains committed to monitoring fund naming trends and tracking how the market evolves in response to its [guidance].”