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, one year after the release of the final European Securities and Markets Authority (ESMA) fund naming guidelines, according to Morningstar’s latest research.
In May 2024, ESMA issued its final guidelines for funds marketed in the European Union that use ESG- or sustainability-related terms in their names. The guidelines are designed to protect investors against greenwashing risk by setting minimum requirements for a fund to adhere to. Fund managers had until 21 May 2025 to either align with the requirements or change fund names to ensure compliance.
Morningstar estimates 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, around 200, or 40%, adopted non-ESG alternatives such as ‘screened’, ‘select’, or ‘committed’, suggesting managers remain keen to signal ESG characteristics through fund names. This correlates with the fact that the most frequently removed terms are ‘ESG’ and ‘sustainable’, while terms such as ‘transition‘, ‘climate’ and ‘screened’ have gained in popularity.
Passive funds have been disproportionally affected, accounting for one third (33%) of rebranded products – more than triple their presence in the SFDR fund universe.
Asset managers have taken various approaches to comply with the guidelines, Morningstar’s paper added. 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.
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 to a year ago and 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.
“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,” commented Hortense Bioy, (pictured) 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.”
