Summary
Details
- European Union
The ESMA Guidelines on funds’ names using ESG or sustainability-related terms apply to UCITS management companies, self-managed UCITS, alternative investment fund managers (AIFMs), and internally managed AIFs using the relevant terminology.
Deep dive
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Background
ESMA began developing the Guidelines amid concerns that ESG-related terminology had become an important marketing tool for investment funds without always being adequately reflected in their portfolios. Its 2022 consultation noted that fund names can strongly influence investors and proposed measurable criteria to reduce greenwashing risks.
The final Guidelines were published in 2024 under the existing UCITS and AIFMD supervisory frameworks. They do not establish a sustainability label or a new category of investment fund. Instead, they set conditions for using ESG and sustainability-related terminology in fund names. The Guidelines became applicable on 21 November 2024, with existing funds given until 21 May 2025 to comply.
Key Provisions
Funds using ESG or sustainability-related terminology must ensure that at least 80% of their investments are used to meet environmental or social characteristics or sustainable investment objectives specified in the binding elements of their investment strategy.
The applicable exclusions depend on the fund's name. Funds using transition-, social- or governance-related terms must apply exclusions based on the EU Climate Transition Benchmark (CTB) rules. Those using environmental-, impact- or sustainability-related terms are subject to the more extensive Paris-aligned Benchmark (PAB) exclusions, which include restrictions relating to specified fossil-fuel activities.
Additional conditions apply to particular terminology. Funds using sustainability-related terms must invest meaningfully in sustainable investments under the Sustainable Finance Disclosure Regulation (SFDR); ESMA has indicated that national regulators may consider less than 50% of the relevant investment proportion insufficient, subject to case-by-case assessment. Transition-related funds must demonstrate that investments are on a measurable transition path, while impact-related funds must seek measurable positive environmental or social impact alongside financial returns.
National competent authorities are responsible for incorporating the Guidelines into their supervision, while fund managers and competent authorities must make every effort to comply with ESMA guidelines.
Current Status
The Guidelines are now fully applicable. Their impact is already visible: ESMA research published in December 2025 examined nearly 1,000 shareholder notifications involving the 25 largest EU asset managers and found that 64% of the funds concerned changed their names, generally removing ESG-related terminology, while 56% strengthened their sustainability-related investment policies. Funds retaining ESG terminology also reduced their exposure to certain fossil-fuel investments more than other funds.
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