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The European Securities and Markets Authority’s (ESMA) naming rules are now in effect.

ESMA is the EU’s financial markets regulator and supervisor.

The new naming rules aim to make it simpler to comply with anti-greenwashing rules for fund managers to not fall foul intentionally of regulation as well as help consumers to know what they are getting.

For fund operators, the changes could provide a lot of clarity about what to and what not to do.

The European Securities and Markets Authority (ESMA) published a Consultation Paper on draft Regulatory Technical Standards (RTS) under the ESG Rating Regulation at the beginning of May.

"With the shifting policy landscape, fund selectors ... must look beyond marketing labels

to ensure that funds genuinely contribute to sustainable outcomes.”

Numerous tools and other initiatives have been introduced to help cope with the new changes. ARK Invest Europe has brought out a guide that is designed for practical strategies to navigate the rapidly evolving sustainable investment landscape in 2025.

The guide, titled “How to Navigate Sustainable Investing in 2025: Useful Tips for Fund Selectors,” discusses how to enhance fund scrutiny and ensure authentic alignment with sustainability mandates.

“Sustainable investing is facing a critical credibility moment,” said Stuart Forbes, Head of ARK Invest Europe and co-author of the guide. “With the shifting policy landscape and increasing investor scepticism, fund selectors ... must look beyond marketing labels to ensure that funds genuinely contribute to sustainable outcomes.”

"The impact of the ESMA anti-greenwashing guidelines on the universe of funds using

ESG-related terms in their names has, so far, been more limited than expected."

As sustainable investing regulations continue to tighten, fund selectors should examine what fund issuers are delivering in practice. The guide provides actionable guidance for fund selectors and is broadly applicable across the sustainable investing landscape. Furthermore, it offers in-depth expertise on specific applications to passive and actively managed funds.

Ahead of the implementation, Morningstar released a report on the state of the universe of EU funds with ESG-related terms. It said these funds with terminology in their names have dropped by only about 8% in the last 12 months.

“Overall, we can say that the impact of the ESMA anti-greenwashing guidelines on the universe of funds using ESG-related terms in their names has, so far, been more limited than expected, with just about 19% of in-scope funds undergoing rebranding,” said Hortense Bioy, Head of Sustainable Investing Research at Morningstar Sustainalytics. “The majority of these funds replaced ESG-related terms with either another ESG term or a neutral alternative, suggesting that asset managers in Europe remain keen to offer products with ESG characteristics and signal these through fund names. Regardless of whether a fund has been rebranded, investors should reassess their funds to ensure they still align with their preferences.”

Morningstar's key takeaways included:

• One year after the release of the final ESMA fund naming guidelines, the number of EU open-end funds and ETFs with ESG-related terms in their names has dropped by only 8% to an estimated 4,220.
• We estimate that 880 funds, or 19% of in-scope funds, have rebranded so far, including 508 that have dropped ESG-related terms, 304 that have replaced one ESG term with another, and 68 that have added an ESG term.
• Among those that dropped ESG-related terms, about 200, or 40%, adopted non-ESG alternatives such as “screened”, “select”, or “committed”, suggesting that managers remain keen to signal ESG characteristics through fund names.
• Passive funds have been disproportionately affected, accounting for one-third of rebranded products - more than triple their presence in the SFDR fund universe.
• The most frequently removed terms are “ESG” and “sustainable,” while terms such as “transition”, “climate”, and “screened” have gained in popularity.
• Asset managers have taken various approaches to comply with the guidelines. Some have made minor adjustments, such as divesting from companies that don’t meet the requirements. Others have rebranded funds by replacing or removing ESG-related terms, with or without corresponding portfolio changes. Regardless of the approach, investors should reassess their funds to ensure they still align with their preferences.
• Looking at March 2025 portfolios, the impact of the guidelines' exclusion rules on in-scope funds is already evident. The number of funds holding contentious stocks has declined compared with a year ago. While some of the stocks are likely to be further divested, others may remain due to differing interpretations of the rules and variations in data sources.

Elsewhere, ESMA published a Consultation Paper on draft Regulatory Technical Standards (RTS) under the ESG Rating Regulation at the beginning of May.

 

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