ESMA Guidelines on funds' names using ESG or sustainability-related terms
Ask the law
Ask a plain question about fund regulation. The answer is built only from the mined legal text, with every point cited to the exact Article — or an honest “not covered”. Not legal advice.
These Guidelines set a plain condition: if a fund puts an ESG or sustainability word in its name, it must actually invest to match — at least 80% of its investments used to meet the environmental or social characteristics or sustainable objectives the name implies — and it must apply a set of exclusions that gets stricter depending on which term it uses. They are ESMA's answer to greenwashing-by-name: the name is a claim, and the Guidelines make the portfolio back it up.
Scope and the core mechanism
The Guidelines apply to fund managers across the EU fund universe — UCITS management companies and AIFMs (including internally managed funds), and the managers of EuVECA, EuSEF, ELTIF and money-market funds. The mechanism has two parts. First, a quantitative threshold: a fund using an ESG or sustainability-related term in its name should invest at least 80% of its investments to meet the environmental or social characteristics, or the sustainable investment objectives, that the name conveys. Second, exclusions calibrated to the term: the stricter Paris-Aligned Benchmark (PAB) exclusions apply to environmental-, impact- and sustainability-type terms, while the lighter Climate Transition Benchmark (CTB) exclusions apply to transition-, social- and governance-type terms. Certain terms carry extra commitments — "sustainable" implies a meaningful allocation to sustainable investments, "transition" implies a measurable path, and "impact" implies investing with the intention of generating a positive, measurable effect.
The gotcha: this is a naming rule, not a disclosure category — it operates independently of a fund's SFDR Article 8 or 9 status. A fund can be fully compliant on its SFDR disclosures and still have to rename or reposition because its name over-promises against the 80% test and the exclusion set.
Key requirements
| Requirement | What it says | The practical point |
|---|---|---|
| 80% investment threshold | At least 80% of investments used to meet the E/S characteristics or sustainable objectives implied by the name | The name sets the floor — you cannot label a fund on a strategy that is a minority of the book |
| Environmental / impact / "sustainability" terms | Apply the Paris-Aligned Benchmark exclusions (the stricter set, including fossil-fuel activity thresholds) | The heaviest exclusions attach to the greenest-sounding names — a fossil-fuel holding can be disqualifying |
| Transition / social / governance terms | Apply the Climate Transition Benchmark exclusions (controversial weapons, tobacco, serious international-norms violators) | A lighter but real exclusion floor — "transition" is not a free pass on the worst names |
| "Sustainable" terms | Commit to invest meaningfully in sustainable investments within the meaning of SFDR | The word "sustainable" carries an extra allocation commitment beyond the 80% and exclusions |
| "Transition" and "impact" terms | Investments on a measurable transition path ("transition"); made with intention to generate positive, measurable impact ("impact") | These terms import an intentionality/measurement standard — assert it and you must be able to evidence it |
| Combined terms | Where a name combines categories, the applicable exclusions and commitments stack | Mixing "sustainable transition" pulls in the stricter of the two — read the name as the sum of its claims |
Status and timeline
| Date | Instrument | What changed |
|---|---|---|
| 2024 | Final Guidelines published (ESMA34-1592494965-657) | Set the 80% threshold, the PAB/CTB exclusion split and the per-term commitments; became applicable following translation into all EU languages, with a transitional period for funds existing before the application date |
What it works with
The Guidelines bite on funds run under the UCITS Directive and AIFMD, and on the EU labelled products — EuVECA, EuSEF and the ELTIF. Their nearest analogue outside the EU is the UK's naming-and-marketing regime under the FCA ESG sourcebook (SDR) — the two solve the same greenwashing-by-name problem with different mechanics, and a manager marketing on both sides of the Channel has to clear both.
The gotcha: the fastest place to fall foul of ESG rules is the fund's name, because it is fixed early and expensive to change. Test the name against the 80% threshold and the exclusion set before it is registered — a rename after launch means investor notices, document changes and reputational noise.
To verify
- Application and transitional dates — pin the exact application date and the length of the transitional period for pre-existing funds against the ESMA text and the national competent authority's confirmation.
- Exclusion cross-references — confirm the current PAB and CTB exclusion articles (Commission Delegated Regulation on climate benchmarks) that the Guidelines incorporate before applying them to a portfolio.
- Term categorisation — where a name uses an unusual or combined term, confirm which category (and therefore which exclusions) ESMA and the home authority treat it as falling into.
Ask a question about this law
Get an article-cited answer built only from the mined legal text — or an honest “not covered”.
Ask the law →