Financial firms dropped terms like “ESG” (Environmental, Social and Governance) and “sustainable” from the names of hundreds of their funds in the year before new European Union rules to clamp down on greenwashing came into force in late May, new analysis shows.

The rules from the European Securities and Markets Authority (ESMA) say that funds with certain sustainability or environmental-related terms in their names cannot invest in companies that get more than a certain share of their revenue from coal, oil, gas or particularly polluting electricity generation.

Those funds now also have to show that 80% of their investments meet the ESG objectives referred to in their titles.

Before the new regulation was introduced, the fund managers that dropped environmental and other sustainability terms from the highest percentage of their fund names were State Street, UBS and Northern Trust, the analysis said. It estimates that around 674 funds have done this overall.

Alison Schultz, an analyst at the German campaign group Finanzwende who conducted the research, said fund managers had earlier betrayed investors’ trust by labelling their funds wrongly and misdirecting money that should have helped to advance the green transition towards supporting business as usual.

“Consumers bought the funds because they wanted to invest sustainably,” she said, adding that “renaming [them] instead of divesting undermines the credibility of a market that depends on financial products being what they claim to be”.

Many fund managers have replaced ESG terminology in the titles of their funds with alternative words like “screened”, “selection” or “committed”, according to research by Finanzwende, Urgewald and Facing Finance and a separate analysis from Morningstar Analytics, which sells research and information to investors.

For example, Invesco changed its “Sustainable Eurozone Equity Fund” into the “Transition Eurozone Equity Fund” in March. Fund documents show that in April 2025 it had investments in Italy’s Enel and Germany’s E.ON, two utilities that sell gas and fossil-fuel electricity.

“Screened” and “transition” funds

Funds with words like “screened” or “transition” in their name can continue to invest as much as they want in oil, gas and coal businesses under the new EU regulations. Hortense Bioy, head of sustainable investing research at Morningstar, told Climate Home the use of words like this suggests fund managers “are still keen to offer products that signal ESG characteristics in the name”.

According to earlier research on the same topic released in March by Urgewald and Facing Finance, more than half of the funds that have dropped environmental-related terms from their names held shares in large fossil fuel companies – with the investments worth around €14bn ($16bn). The name changes mean that they can keep those investments.

While some have gone down this path, Morningstar analysis suggests others have done the opposite – ditching fossil fuels investments and keeping their green names. Leading global fund managers like US-based BlackRock, the world’s largest asset manager, have taken a varied approach across their portfolios.

An email BlackRock sent to clients on March 18, which it shared with Climate Home, said it had responded to the ESMA naming guidelines by changing the names of 56 funds worth $51bn to drop sustainability terms. An example it gave was dropping “ESG” from the BSF Systematic ESG World Equity Fund.

On the other hand, the email said it had kept the ESG names of another 60 funds worth $92bn, “enhancing the sustainable characteristics”.

Funds drop Total, Galp and Eni

Morningstar found that ESG funds which did not rebrand themselves as less green were investing less in fossil fuel companies like TotalEnergies, Galp and Eni in March this year compared to May 2024.

“It is fair to assume that part of the decline can be attributed to stock divestments made to comply with the ESMA guidelines,” their analysis said.

While State Street renamed the highest percentage of these funds, other firms – like BlackRock and Amundi – have lots of sustainability-related funds that were grouped under broad EU green financial disclosure categories but never had these now-regulated terms in their names.

Cobalt and nickel-free electric car batteries boom in “good news” for rainforests

Last July, Climate Home revealed that EU-based funds like Blackrock’s, which claimed to be environmentally friendly, held shares worth at least $65 million in major coal companies. Under the new rules, they can continue as long as they don’t have “environmental” or “sustainable” terms in their name.

While funds with what the ESMA calls environmental, impact or sustainability related terms cannot invest in companies with fossil fuel revenues above a certain threshold (see chart above), funds with transition-related terms still can. These words include “transition”, “improve”, “progress”, “evolution”, “transformation” and “net zero”.

BlackRock also said it had either changed the names or investment methodologies of 18 funds worth $42bn for a “clearer alignment to transition” in response to the new rules.

Investors notified

Fund managers are required to notify investors of the name changes, usually in prospectuses sent to professional investment managers.

Bioy of Morningstar said she had seen many of these notifications and, in some of them, fund managers told investors they were lowering their sustainable investment allocations. “Some of them are not as ESG as they used to be,” she said. “They’ve become almost like traditional funds.”

But she said that firms that have renamed their funds cannot necessarily be accused of greenwashing before because there were “no rules” over what terms like ESG and sustainable meant. Investors now need to be educated on what these terms legally mean according to the new rules, she added.

The rules only affect funds marketed in EU countries but, according to Bioy, that is the vast majority of the world’s funds that make green claims, even though they make up a small proportion of the total.

Asked to comment, a BlackRock spokesperson told Climate Home the investment objectives of its funds “are clearly disclosed in each fund’s prospectus and on BlackRock’s website”.

Funds “are managed in line with applicable regulations governing sustainable investing”, they said, adding that “for investors that have decarbonization investment objectives we offer a range of products that provide such exposure”.

At the time of publication, State Street, UBS, Northern Trust and Invesco had not responded to requests for comment.

The post As EU acts to stop greenwash, funds drop climate claims from their names appeared first on Climate Home News.

As EU acts to stop greenwash, funds drop climate claims from their names