Stockholm (NordSIP) – New fund naming guidelines from the European Securities and Markets Authority (ESMA) come into full effect on 21 May 2025, which will mark the end of a 6-month transition period for existing products. This has prompted the world’s largest asset manager BlackRock to either rename or amend 135 exchange traded funds (ETFs) and pooled vehicles that had previously been labelled as ESG or sustainable.
As part of measures to combat greenwashing, the new guidelines require funds marketed using terms including environment, social, governance, climate, transition, or net-zero to meet certain minimum thresholds regarding the proportion of relevant qualifying investments. As the ESMA put it: “A fund’s name is often the first piece of fund information investors see and, while investors should go beyond the name itself and look closely at a fund’s underlying disclosures, a fund’s name can have a significant impact on their investment decisions.”
BlackRock has chosen to change the methodology behind 60 of its funds to make them compliant with the new guidelines. This has involved the addition of exclusions as required for Paris Aligned Benchmarks (PABs) or the implementation of transition-related investment objectives. In other cases, funds have been renamed from broader climate or environment-related terms towards more specific low-carbon transition descriptions.
The beginning of the end for fund greenwashing?
The new ESMA fund naming guidelines may help BlackRock avoid further accusations of greenwashing. In October 2024 environmental NGO ClientEarth filed a letter of complaint with the French financial regulator over the alleged misnaming of 18 actively managed retail funds marketed in The EU and the UK. With specific reference to ESMA guidelines, ClientEarth claimed that BlackRock funds marketed as sustainable contained over $1 billion worth of holdings in companies classed as fossil fuel expanders. These included shares in TotalEnergies, Exxon Mobil, Shell, BP, Eni SpA, Chevron, Conoco Phillips, and Equinor.
ClientEarth’s case against BlackRock was the NGO’s first such action against a financial institution. It remains to be seen whether the 18 funds under scrutiny have been renamed or amended to ClientEarth’s satisfaction. BlackRock is not alone in undergoing the process of renaming or redesigning its fund range ahead of the ESMA deadline, with other large managers such as BNP Paribas Asset Management, DWS, State Street, and UBS Asset Management also making changes to their products.
In the run-up to the original release of the ESMA guidelines in November 2024, Morningstar published analysis showing 1,600 funds with potential breaches to exclusion rules. The most commonly held stocks behind these breaches were TotalEnergies, Tencent Holdings, and Shell. Morningstar estimated that almost of third of the funds with ESG- or sustainability-related names would struggle to meet minimum percentages of ‘meaningfully’ sustainable investments. Although national competent authorities were afforded some discretion to define what constitutes ‘meaningful’ sustainability, the current clean-up process carries out by BlackRock and its peers hints at an industry preferring to err on the side of caution.
