EU regulations prompt widespread fund rebranding and fossil fuel divestments

The European Union’s tightening of rules around fund names that reference environmental, social and governance themes has prompted widespread rebranding and concrete portfolio changes across the asset-management sector, according to research and market analyses released alongside the regulator’s own review.

According to the report by the European Securities and Markets Authority (ESMA), its guidelines on the use of ESG or sustainability-related terms have “improved consistency in the use of environmental, social, and governance terms by increasing the alignment between the names of funds and their actual investment strategies.” The authority said the measures have strengthened investor protection by helping to reduce greenwashing risks.

ESMA’s research, based on nearly 1,000 shareholder notifications from the 25 largest EU asset managers overseeing €7.5 trillion in assets, found that 64 per cent of the funds mentioned in those notifications changed their name, in most cases to avoid the use of ESG-related terminology, and 56 per cent updated their investment policies to strengthen their sustainability focus. The study highlighted that funds with higher fossil-fuel exposures were more likely to remove ESG terms from their names, while funds that retained ESG labels reduced their portfolio share of fossil fuel holdings more than other funds.

The findings sit alongside ESMA’s published guidelines, which establish harmonised criteria for using ESG or sustainability-related terms. According to the announcement, funds must ensure that at least 80 per cent of their investments meet environmental, social or sustainable investment objectives to use ESG-related terms in their names; the guidelines also set exclusion criteria tailored to specific terms. ESMA published translations of the guidelines in all official EU languages and said the rules apply from 21 November 2024, with pre-existing funds required to comply within six months and newly created funds expected to comply immediately. National competent authorities were asked to notify ESMA of their compliance status within two months of publication.

Market commentary and independent analysis corroborate and expand on ESMA’s picture. Industry reporting noted that many asset managers chose rebranding over reshaping portfolios, particularly among passive strategies. According to Morningstar-based analysis cited by Funds Europe, a notable share of passive funds dropped ESG-related terms while largely maintaining their underlying strategies, prompting questions about whether name changes were cosmetic in some cases.

InfluenceMap’s assessment of the post-guideline market found sharper shifts in naming and portfolio composition between June 2024 and May 2025: the number of funds with “ESG” and “Sustainable” in their names fell by 28 per cent and 27 per cent respectively, while funds using “Transition”-related names increased by about 10 per cent and showed rising exposure to both fossil fuel and green companies. InfluenceMap also reported that equity funds retaining ESG or sustainable names decreased fossil fuel investments and increased green exposure over the period.

Commentary by GRC Report echoed ESMA’s central finding: nearly two-thirds of funds removed or downgraded ESG or sustainability-related terms rather than adjust portfolios, while more than half introduced or tightened fossil fuel exclusions. The outlet said this underscores how portfolio composition and pre-existing exposures drove compliance choices.

ESMA emphasised that it will continue to monitor fund naming trends and engage with the European Commission to support evidence-based policymaking on ESG and sustainable finance regulation. The authority has scheduled a webinar to present the research findings in detail on 20 January 2026 at 10.00, with registration required by 12.00 on 19 January 2026.

Taken together, the regulator’s analysis and independent studies suggest the guidelines have had a material market impact: they have pushed a sizeable portion of the fund universe to clarify or change their marketing language, prompted substantive policy updates in many funds and, in many cases, accelerated reductions in fossil-fuel exposure among funds that maintain ESG branding. At the same time, observers caution that name changes alone do not always signal strategy shifts, leaving enforcement and ongoing supervisory scrutiny to determine whether the new naming regime delivers lasting improvements in investor protection and market transparency.