ESMA Research Highlights Influence of ESG Fund Naming on Investor Flows

Why do fund names matter? 

The European Securities and Markets Authority (“ESMA”) recently presented findings from a detailed study on ESG-related fund names – an increasingly important topic in the asset management industry. Fund names are often the first – and sometimes only – point of contact between a fund and prospective investors.

This makes them a powerful marketing tool, but also a potential source of confusion if they suggest a level of ESG integration that is not borne out in the fund’s strategy. With investor protection and transparency in mind, ESMA set out to understand how ESG-related name changes influence investment behaviour.

ESMA research overview 

The study’s methodology, as presented by ESMA, examined 71,000 EU-domiciled UCITS and AIFs over the period Q2 2009 – Q3 2024. It aimed to: 

 track the evolution of ESG fund name changes in the EU; 

• assess the impact of name changes on investor flows; and 

• examine whether effects vary by ESG theme. 

 Key findings 

 Trends in ESG Naming 

•  As of Q3 2024, 10% of EU funds include ESG terms in their names (15% of UCITS, 4% of AIFs). 
• The use of ESG names surged between 2018 and 2021, then levelled off. 
• Environmental terms are now the most common, while terms like “sustainability” have slightly declined since 2022. 
• Popular terms added in name changes include “ESG”, “Sustainable”, “Impact”, “Transition” and “Ethical”. 
• There has been a recent uptick in funds removing ESG terms, potentially in response to the ESMA Guidelines on funds’ names using ESG or sustainability-related terms (the “Guidelines”).

Impact on Fund Flows 

ESMA analysed fund flows five quarters before and after each name change. Key results included the following: 

•  ESG-related name changes are linked to a 2.2% average increase in assets under management (“AUM”) in the quarter of the change. 
• Flows remain strong in subsequent quarters, with cumulative inflows reaching around 9% over the following year. 
• Name changes with an environmental focus saw the greatest impact, resulting in a 16% increase in AUM over four quarters. 
• Social, governance and general ESG terms had little or no measurable effect on investor flows. 

Policy and regulatory implications 

 ESMA emphasised the policy relevance of the findings, noting that the analysis supports longstanding concerns about the use of ESG-related fund names as a marketing tool without sufficient alignment to the fund’s actual investment strategy. 

 Key implications include: 

 Fund names must clearly and accurately reflect the strategy and underlying holdings. 

• The Guidelines, which set measurable criteria for using ESG-related terms, are crucial to preventing greenwashing and will bring more consistency and accountability to ESG disclosures across the market. 

Next steps 

ESMA plans to publish further guidance on evaluating ESG alignment in fund portfolios. This work is being developed in coordination with the European Commission, the German regulator (BaFin), and the Dutch AFM. 

Final thoughts 

ESMA’s research confirms what many in the industry have long suspected: ESG fund names are not just cosmetic. They materially influence investor behaviour, especially when environmental themes are invoked. The findings highlight not only the power of fund naming as a marketing tool but also the market’s reaction to increased scrutiny.  

In this context, it is essential that asset managers ensure fund names accurately reflect the underlying investment strategy, not only to meet regulatory requirements but also to maintain investor trust. This can be achieved by clearly documenting how ESG factors are integrated into the investment process, ensuring that portfolio holdings align with the ESG themes referenced in the name, and conducting regular reviews to confirm consistency between the fund name and the achievement of the related investment objectives. 

 Contact our ESG Legal Team should you have any questions on the above or need any help in tailoring your investment strategies to comply with the Guidelines.