ESMA's New Guidelines: A Strong Stance on Preventing Greenwashing in ESG Fund Names

Fani Xylouri,
Andia Shtepani
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On 14 May 2024, the European Securities and Markets Authority (ESMA) issued its Final Report on Guidelines for funds' names, following its Public Statement on the matter released on 14 December 2023. These guidelines, applicable to various types of investment fund managers (IFMs), aim to clarify when the use of ESG or sustainability-related terms in fund names could be considered misleading. The Commission de Surveillance du Secteur Financier (CSSF) emphasizes that the Guidelines apply to IFMs overseeing UCITS or AIFs, regardless of their disclosure category under Articles 6, 8, or 9 of the Sustainable Finance Disclosure Regulation (SFDR). Therefore, IFMs are required to conduct a self-assessment to determine the relevance of the Guidelines to the products they manage and to ensure that fund names comply with these Guidelines.

The Surge in ESG Investments and the Greenwashing Challenge

ESG investments have seen significant growth as investors increasingly prioritise environmental and social considerations. Funds that emphasise sustainability attract considerable attention, allowing investors to align their financial objectives with their ethical values. However, this popularity has also led to a surge in funds that misuse ESG terminology, failing to incorporate true sustainability practices into their investment strategies—a practice known as greenwashing. Greenwashing deceives investors and damages the credibility of the entire ESG sector, making regulatory oversight essential.


ESG-related Terms

Funds utilizing ESG terminology in their names must demonstrate substantial alignment, with a minimum of 80% of their investments reflecting environmental or social characteristics outlined in their investment strategies.


Sustainability-related Terms

ESMA has opted to eliminate the 50% threshold for sustainable investments due to concerns about the subjective nature of the SFDR definition. The threshold was replaced with a requirement for substantial investment in sustainable assets for funds using sustainability-related terms in their names.


Impact and Transition-related Terms

ESMA proposed a provision for funds using "impact" or "transition" related terms in their names. For funds using "impact" terms, managers must ensure that investments below the minimum proportion aim to generate measurable social or environmental impact alongside financial returns. For those using "transition" terms, managers must demonstrate investments are on a clear and measurable path to social or environmental transition. This aims to establish a stronger connection between the fund's strategy and its name, ensuring a measurable dimension to the strategy. This provision aligns with a prior recommendation in the supervisory briefing emphasizing that "impact" terms should be used only by funds with investments intended to generate positive, measurable social and environmental impact alongside financial returns.


Minimum Safeguards

ESMA acknowledges that Paris-aligned Benchmarks (PAB) for fossil fuel exclusions could unfairly penalise funds not primarily environmental or focused on transition. Consequently, ESMA suggests using the exclusion criteria of the Climate Transition Benchmark (CTB) for transition-, social-, and governance-related terms instead. CTB exclusions encompass companies involved in activities related to controversial weapons, tobacco cultivation and production, and those found violating UNGC principles or OECD Guidelines for Multinational Enterprises. Top of Form


Implementation and Compliance

The guidelines will take effect three months after their official translations are published. National competent authorities in the EU will have two months to notify ESMA of their compliance with these guidelines. Transitional provisions will allow existing funds to adjust to the new requirements, ensuring a smooth implementation process.


Market Impact

These guidelines are a significant step towards enhancing transparency and accountability in the ESG investment sector. By setting stricter standards for the use of ESG-related terms in fund names, ESMA aims to protect investors from misleading claims and promote genuinely sustainable investment practices. This move is expected to bolster investor confidence and support the development of a more credible and robust ESG market in Europe.



ESMA's new guidelines represent a move to combat greenwashing and ensure that fund names accurately reflect their investment strategies. In an era where sustainability is becoming increasingly important, these guidelines will play a crucial role in safeguarding investor interests and promoting transparency in the financial markets. By fostering a trustworthy and authentic ESG investment environment, ESMA is helping to pave the way for a sustainable future in the financial industry.


How can Grant Thornton Luxembourg help you?

Our team of experts in Sustainability and ESG can assist you to:

  • Align your strategy and risk management following ESG considerations.
  • Review current practices, identify gaps, and achieve compliance with Sustainable Finance regulatory requirements.
  • Raise awareness of the management body and staff on ESG matters.


If you wish to understand how you could best implement ESG practices in your organisation, please contact Fani Xylouri or Andia Shtepani.