ESG rules induce name modifications among investment funds due to compliance requirements.
The European Securities and Markets Authority (Esma) has introduced new ESG fund naming guidelines, aiming to tackle greenwashing and clarify ESG claims [1]. These regulations set a significant threshold for funds wishing to include ESG-related terms in their names: at least 80% of the fund's investments must align with the specified ESG objectives [2][3].
This requirement could prompt passive funds to rebrand or adjust their strategies to comply. Morningstar Sustainalytics reported at least 880 funds across Europe rebranded between May 2024 and May 2025 [3]. Many of these name changes were implemented close to the May 21, 2025 deadline [4].
Despite the rebranding, fund managers have indicated that even where ESG references were removed, the funds continue to follow sustainable investment strategies [1]. Passive funds accounted for a significant proportion of these changes, often either removing ESG references or replacing them with alternative labels [2]. Changes in index methodology were more frequent among passive strategies that retained ESG in their names [5].
However, the lack of current portfolio data may make it difficult for investors to verify these claims independently [6]. Morningstar noted that this lack of transparency could be a concern for those assessing the compliance of funds with the new guidelines [6].
Among actively managed funds, a third made changes to their ESG criteria, and a third experienced some impact on their investable universe [7]. Changes in actively managed funds involved the introduction of exclusions aligned with Climate Transition Benchmarks or Paris-Aligned Benchmarks, or adjustments to the minimum sustainable investment threshold [8].
Ronald Van Genderen, senior analyst at Morningstar, shared that the evolving nature of ESG regulation means that investors should remain alert [9]. He also stated that the regulations acknowledge "many shades of green," suggesting that funds may have different interpretations of what constitutes sustainable investing [9].
Nordea, a major European financial institution, echoed this sentiment, stating that "ESG's future is about outcomes, not labels" [10]. This indicates a focus on the tangible results of sustainable investments, rather than just the labels attached to funds.
Morningstar typically analyzes such changes in their reports and updates, which would be a valuable resource for understanding the specific effects on passive funds. As the new regulations continue to be implemented, it will be interesting to see how the landscape of European funds evolves in response.
References: [1] Financial Times, May 2025 [2] Reuters, May 2025 [3] Morningstar, May 2025 [4] Bloomberg, May 2025 [5] Morningstar, June 2025 [6] Morningstar, June 2025 [7] Morningstar, June 2025 [8] Morningstar, June 2025 [9] Morningstar, June 2025 [10] Nordea, June 2025
- The new ESG naming guidelines by Esma have prompted a reevaluation of investing strategies in the business world, as influenced by the stipulation that at least 80% of a fund's investments must align with ESG objectives.
- Compliance with the ESG fund naming regulations has led to the rebranding of many funds, with Morningstar Sustainalytics reporting at least 880 European funds making such changes between May 2024 and May 2025.
