How ESG fund names influence EU investments
The European Securities and Markets Authority (ESMA) recently revealed that ESG-related fund names have a measurable influence on investor behaviour.
According to its latest research, names that reference environmental, social or governance criteria can significantly sway fund flows, raising concerns about clarity and accuracy in fund marketing.
Zeidler Group, a RegTech platform for investment funds law, recently delved into the research and its findings.
The ESMA study focused on understanding how fund names that include ESG terms affect investor decision-making. Fund names are often the first touchpoint between investors and asset managers, serving as powerful marketing tools. However, if these names imply ESG alignment without substance, they can mislead investors and undermine trust.
The research analysed a dataset of 71,000 EU-domiciled UCITS and AIFs spanning from Q2 2009 to Q3 2024. The study tracked the evolution of ESG fund name changes, assessed their impact on investor flows, and explored variations by ESG theme.
Findings show that as of Q3 2024, 10% of funds in the EU include ESG terminology in their names—15% of UCITS and 4% of AIFs. The use of ESG-related terms increased sharply between 2018 and 2021, before stabilising.
Environmental terms are currently the most commonly used, while the popularity of words like “sustainability” has declined slightly since 2022. Notable additions include “Sustainable”, “Impact”, “Ethical”, “Transition” and “ESG”.
In terms of fund flows, the study found that name changes referencing ESG led to an average 2.2% rise in AUM during the same quarter, with inflows continuing in the following quarters. In total, funds experienced a cumulative 9% increase in AUM over the next year.
ESMA underlined the regulatory implications of these findings. The research supports the long-standing concern that fund names are being used for marketing purposes without corresponding changes in investment strategy. ESMA’s Guidelines—developed to provide measurable criteria for the use of ESG terminology—are designed to combat greenwashing and foster greater consistency in ESG fund disclosures.
Ultimately, the findings underscore the need for asset managers to align their fund names with actual investment strategies, Zeidler said. Clarity and accuracy in fund naming are not just regulatory imperatives but also vital for maintaining investor trust. This requires transparency in how ESG factors are integrated into the portfolio, alignment between name and holdings, and regular internal reviews to confirm the fund is achieving its stated objectives.
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