The European Securities and Markets Authority (ESMA) is set to review its ESG fund-naming rules following the overhaul of the EU’s Sustainable Finance Disclosure Regulation (SFDR).
The supervisory body said it would review its guidelines on funds’ names using ESG- or sustainability-related terms in light of the outcome of the SFDR negotiations.
The SFDR is currently being overhauled to introduce a more formal product-categorisation system, with EU policymakers considering new requirements around sustainability disclosures and the treatment of fossil fuel investments.
ESMA’s guidelines currently require funds using ESG- or sustainability-related terms in their names to invest at least 80% of their assets in line with environmental or social characteristics or sustainable investment objectives.
Funds using certain sustainability-related terms are also subject to exclusion criteria, including restrictions linked to fossil fuel activities. The guidelines began applying in November 2024, with existing funds given until May 2025 to comply.
ESMA research published last year found that 64% of funds included in almost 1,000 shareholder notifications reviewed by the regulator changed their names in response to the rules, while 56% changed their investment policies.
The rules were introduced to protect investors from exaggerated sustainability claims and reduce the risk of greenwashing in the investment industry.
Read more: Busting seven big myths about ESG investing – from greenwashing to returns
