How ESMA's New EU Rules Affected ESG Funds

Fund names are important signals of a fund’s investment strategy and portfolio composition. They are also a powerful marketing strategy. ESMA recently published a study confirming previous research that shows that adding an ESG term to a fund's name has generally led to increased net inflows.

In May 2024, the European Securities and Markets Authority issued its final guidelines for funds marketed in the European Union that use ESG- or sustainability-related terms in their names. The guidelines, which aim at protecting investors against greenwashing risk, set minimum requirements for a fund's underlying holdings. Fund managers had until May 21, 2025, to either align with the requirements or change fund names to ensure compliance.

Download the comprehensive ESMA Guidelines on ESG Fund Names report to see how fund managers are adapting to the new naming rules and how exclusion requirements are reshaping portfolios.

EU fund managers must meet the following conditions to use ESG or sustainability-related terms in a fund’s name.

• At least 80% of fund holdings meet its ESG characteristics or sustainability objective. Funds using sustainability-related terms must go further, committing to invest “meaningfully” in sustainable investments.
• The fund excludes companies in alignment with the climate-transition benchmark. Funds must exclude companies involved in controversial weapons, the cultivation and production of tobacco, or in violation of the UN Global Compact Principles or Organisation for Economic Co-operation and Development Guidelines for Multinational Enterprises.
• The fund excludes companies deriving a share of their revenues above a certain threshold from fossil-fuel-related activities if it uses environmental, impact, or sustainability-related terms in its name.

It’s worth noting that although the ESMA clarified last December that a “meaningful” allocation to sustainable investments should be at least 50%, regulators in some jurisdictions, such as Sweden and Denmark, impose even higher thresholds of 80% and 85%, respectively.  

We estimate that at least 1,450 funds using ESG- or sustainability-related terms have changed their name since January 2024, or about 31% of funds in scope of the ESMA naming guidelines. 

Article 8 funds make up the majority of rebranded funds. Among those that dropped ESG-related terms, almost three-quarters were passively managed. Conversely, most of the Article 8 funds that swapped ESG-related terms with others were active strategies.

“ESG” and “sustainable” topped the most popular key terms removed.

We estimate that between January 2024 and June 2025, close to 390 Article 8 and Article 9 funds with the specific term “ESG” in their names have either replaced that term with another ESG-related word or removed it entirely. Notably, “ESG” also emerged as the most frequently added term across fund names during the same period. 

Meanwhile, at least 310 funds with “Sustainable” or “Sustainability” have also had the term removed or replaced by other related terms. Several factors may have motivated managers to make this change, including a desire to adjust the investment objective to align with evolving investor preferences. In some cases, the portfolio may not have been able to meet the ESMA requirement for a meaningful allocation to sustainable investments—i.e. >50% of portfolio7 .

Many funds replaced contentious ESG-related terms with alternative, often vaguer, terms—examples include “screened,” “select,” “committed,” or “advanced.”

This suggests that managers remain keen to signal ESG characteristics— primarily exclusions—through fund names. These substitutions indicate a shift in language, as managers adjust their wording to comply with regulatory requirements, while continuing to respond to investor preferences. Strategies based solely on exclusions continue to appeal to certain investors. We identified more than 200 products that replaced contentious words such as “sustainable” and “ESG” with non-ESG alternatives.

• Amundi S&P World Industrials Screened ETF removed the term “ESG” from their names and replaced it with the word “screened.” The underlying indexes continue to apply an ESG scoring and screening methodology to tilt toward issuers ranked higher on ESG criteria and green bond issuers, while underweighting or removing issuers that rank lower.
• Robeco Global Stars Equities Fund removed “Sustainable” from its name but left its investment strategy unchanged. The fund continues to "incorporate sustainability into its investment process through the application of exclusions, ESG integration, target setting (ESG and environmental footprint), and voting."
• Zurich Climate Focus US Corporate Bond Fund replaced “carbon neutral” with “climate focus.” The active strategy places particular emphasis on achieving an overall carbon footprint aligned with the Paris Agreement, and prioritizes companies that are pioneering clean technology solutions to tackle climate change.

Some asset managers made minor adjustments, such as divesting from companies that breach PAB or CTB exclusion rules. Others refined the funds' investment objectives and policies. For funds requiring more extensive changes, managers opted to rebrand, either by replacing the ESG-related term or removing it altogether. 

However, even some rebranded funds underwent adjustments to the strategy or portfolio. 

All of this means that, whether rebranded or not, funds within the scope of the guidelines may require investors to reassess the funds they hold to ensure they still align with their preferences.

Some commonly-held energy stocks saw a decrease in funds holding these stocks, as well as a decrease in average portfolio weight:

• TotalEnergies saw the number of portfolios holding it fall by 24% between May 2024 and March 2025.
• Neste saw the number of investing funds decrease by 41% between May 2024 and March 2025.

For more information on rebranding activity and the impact of ESMA guidelines on fund portfolios, download the full research report. We analyze trends and fund holdings using Morningstar Sustainalytics company ESG research.

The full report covers:

• The most commonly used sustainability-related terms
• Reasons behind variations in PAB/CTB exclusion applications across funds and managers
• Changes among 25 stocks commonly held by in-scope funds