ESMA finds increase in use of ESG-related language in the EU fund industry

ESMA has published a report highlighting the increasing use of language related to ESG factors in the names and documents of EU investment funds. This effort aligns with ESMA’s focus on combatting greenwashing, which refers to the misleading use of ESG-related claims by financial products.
ESMA’s study reveals that the percentage of EU UCITS investment funds incorporating ESG-related words in their names has surged from less than 3% in 2013 to 14% in 2023. Notably, fund managers tend to prefer generic ESG terms like ’ESG‘ or ‚Sustainable’ over more specific language. This preference makes it challenging for investors to verify whether a fund’s portfolio aligns with its name.
The report also points out that funds with ESG-related names and those disclosing under Article 9 of the SFDR tend to use more ESG words in their documentation. However, differences exist between regulatory documents and marketing materials, suggesting fund managers tailor their communication based on their intended audience.
This analysis contributes to ESMA’s ongoing efforts to monitor greenwashing risks in the investment management sector and supports regulatory initiatives regarding ESG disclosure requirements for investment funds (eventid=5642 and eventid=18186).
One key finding from the report is the increasing adoption of ESG-related language in fund names. The growth trend began in 2016, picking up significantly after the 2015 Paris Agreement and the EU Green Deal. It is evident that investors have a strong preference for funds with ESG words in their names, with net flows into such funds consistently exceeding those into non-ESG-named funds.
While this trend indicates growing interest in sustainable investments, it also highlights the need for clearer definitions and standards for ESG-related terms and their use in fund names to combat potential greenwashing.