On 17 December 2025, the European Securities and Markets Authority (ESMA) released a report examining the impact of ESMA Guidelines on funds’ names using Environmental, Social, and Governance (ESG) or sustainability-related terms (the Name Guidelines), for which the deadline of implementation was set on 21 May 2025 for existing funds[1] (the Report).
For context, the Name Guidelines establish an implicit hierarchy across ESG-related terms with common minimums, including the 80% threshold for investments used to meet E/S characteristics or a sustainable investment objective, and, for “sustainability”-related terms, an additional expectation that at least 50% of investments qualify as “sustainable investments”. They also map exclusions to EU Climate Transition Benchmark (CTB) and Paris‑Aligned Benchmark (PAB) frameworks, with PAB adding fossil‑fuel related revenue thresholds to the CTB baseline.
As of May 2024, around 4,900 European Union (EU) funds were using ESG terms in their names. To implement the Name Guidelines, fund managers’ implementation strategies turned around two principal options: either change the fund’s name or update the investment policy to meet the criteria.
Both routes carried tradeoffs. A name-change risked investor divestment and potential reputational damage, particularly against the backdrop of recent greenwashing accusations. By contrast, investment policy updates, notably adding explicit exclusions and minimum investment thresholds, could have constrained the investable universe of assets and fund manager’s flexibility, with potential implications for returns and volatility. Additionally, some fund managers may already have applied relevant exclusion criteria in practice without making an explicit reference, so the impact of the Name Guidelines on those portfolios was limited. The Name Guidelines have a rather positive overall impact: by improving alignment between marketing communications and portfolio composition, they play an active role in mitigating greenwashing risks.
Key results
As set out in the Report, the implementation of the Name Guidelines in the EU fund market prompted significant changes. Out of the funds who communicated publicly on the changes resulting from their implementation, two-thirds changed their names and more than half revised their investment policies.[2]
Of funds that changed their name: 61% removed all ESG terms and a further 21% “downgraded” to a less stringent term (e.g., from “Sustainable” to “ESG”). A parallel adoption of alternative terminologies such as “Committed”, “Screened”, “Select” or “Advanced”, also emerged, which may raise supervisory questions if used to signal ESG features absent compliance with the relevant thresholds and exclusions.
For funds that updated their policy, the most common move was to add explicit exclusions, especially the PAB fossil-fuel exclusions for sustainability or environmental terms, and to codify minimum investment thresholds. In fact, minimum thresholds were updated for 179 funds, frequently by adding the 80% guidance for environmental or social characteristics or the sustainable investment objective.
ESMA also analysed the link between the funds’ name and the investments in fossil fuel. Through name changes alone, the aggregate fossil‑fuel exposure of funds using sustainability‑ or environmental‑related labels dropped from EUR 17.4bn to EUR 5.9bn across the sample. Since publication of the Name Guidelines, funds that retained ESG terms have reduced their fossil‑fuel exposure by more than 40% relative to April 2024, while funds that removed ESG terms showed only a slight decline.
Finally, it is worth noting that the influence of the Name Guidelines also extends to the United States (US), as a fund with non-zero fossil fuel exposure run by a US-headquartered manager is, on average, about 65% more likely to rebrand than a comparable fund managed by an EU-headquartered manager. This regional divergence disappears where portfolios have zero fossil‑fuel exposure.
Practical implications for managers
In addition to assessing fund names against the hierarchy of terms, managers should evidence (i) alignment with the 80% minimum for E/S characteristics or sustainable investment objectives, (ii) the 50% “sustainable investments” expectation where using “sustainability”-related terms, and (iii) application of CTB or PAB exclusions as appropriate, recognising that PAB extends to fossil‑fuel revenue thresholds. Robust documentation (and, where needed, prospectus updates) can mitigate greenwashing risk and support supervisory reviews. Managers retaining ESG terms should anticipate supervisory focus on portfolio composition over time. Conversely, funds unable to meet thresholds and exclusions may prefer to remove or “downgrade” terminology to avoid misleading signals and associated reputational risks.
What’s next?
The Report concludes that the Name Guidelines have prompted greater consistency in the use of ESG terminology by more closely aligning fund names with their underlying investment strategies and portfolios. They have also reinforced investor protection by mitigating greenwashing: funds with less ambitious ESG approaches have removed ESG terms from their names, while funds that retain such terminology appear to be greening their portfolios at a relatively faster pace than other funds.
In light of this positive result, ESMA highlights the importance of fund names and minimum exclusions in future sustainability rules and will therefore keep monitoring emerging terminology and market evolution.
If you are seeking assistance with respect to the Name Guidelines, please contact our ESG experts, Aurélien Hollard and Julie Pelcé.
[1] For more information on the implementation of the Name Guidelines in Luxembourg, please click here.
[2] Based on nearly 1,000 shareholder notifications from the 25 largest EU managers with assets under management of EUR 7.5 trillion.
