“No harmless rebranding” – Investment funds drop sustainability claims following new EU guidelines on names
Clean Energy Wire
EU rules have pushed many investment funds to drop terms like “sustainable” or “climate” from their names if they could not live up to the promise, even though guidelines did not cause fund operators to design their portfolios in a more sustainable way, said NGO Finance Watch Germany (Finanzwende). A joint assessment of more than 15,000 funds on the European market by NGOs urgewald and Facing Finance found that 674 funds, whose former name would have required an end to fossil fuel investments under the new rules, were simply renamed.
“What we are seeing here is not harmless rebranding,” said Finance Watch’s Alison Schultz. Consumers had invested in the funds because they wanted to do so sustainably. “A mere change of name is no substitute for real change, but instead abuses the trust of investors and misdirects capital that should actually be used for ecological transformation,” she said. The report said that the organisations are now investigating whether funds that have to divest from fossil fuels under the new rules actually follow through by the May 2025 deadline.
The new guidelines from the European Securities and Markets Authority (ESMA) on naming practices for funds using ESG (environmental, social, and governance) or sustainability-related terms came into force in 2024. The objective of the guidelines is to ensure that investors are protected against unsubstantiated or exaggerated sustainability claims in fund names. They also provide asset managers with clear and measurable criteria to assess their ability to use ESG or sustainability-related terms in fund names. The guidelines require funds with certain sustainability terms in their name to exclude fossil fuel companies and to invest at least 80 percent of the fund's assets in accordance with the strategy stated in the name, said Finance Watch.
Integrating finance into climate and energy policy has become a central challenge for governments around the world, as emission reduction plans need proper funding. Investments that can undermine their climate goals have to be cut back. Fighting misleading sustainability claims at different levels is a key part of the European Union’s strategy.
