The Surprising Truth About Retail Investors and the Use of ESG Terms in Fund Names

money growing on tree - ESG terms in Fund names

The Surprising Truth About Retail Investors and the Use of ESG Terms in Fund Names 

Has the dust settled on SFDR and ESG in Europe? Not so fast. Despite appearance, not all market participants took their formal stance on SFDR yet. There is a good share of the market still in the article 6 SFDR limbo. Part of it is made by the American fund managers with less of a consolidated footprint in Europe. Some others are instead the managers of emerging markets strategies. And then there is the second version of SFDR underway.

Where the debate at European level can never be more heated on issues of greenwashing, the trend of the use of ESG terms in fund names definitively caught the attention of European regulators. In the spotlight for the first time by the end of 2022, with one initial consultation from ESMA, it continues to be under the radar of European authorities with a recent additional paper from ESMA on ESG names and claims in the fund industry.   

The theme of ESG in fund names remains of extreme interest for its interconnectedness with the broader theme of greenwashing and the most criticised use of SFDR designations as proxy ESG labels.   

Get in touch here with your contacts at Veneziano & Partners to see how we can help with ESG in Fund Names. 

ESG in Fund Names – too much too soon  

Even though the initial consultation from ESMA on ESG in fund names did not receive all positive feedback, consensus seems to have been reached on the validity of its main premises. Fund names, especially in the retail market, are very powerful marketing tools. It makes sense to want to regulate at European level the use of ESG terms in fund names, especially when in the retail market a fund name could as well be the main driver for investor decision. The need for regulation at European level is even more pressing considering that other member states in Europe have already – or are just about to introduce – their own rules on the use of ESG in fund names.  

Many reasons are behind the lukewarm reception of the initial proposal from ESMA to regulate the use of ESG in fund names. The fact that the definition of ESG investing is still a moving target same as the notion of greenwashing – notwithstanding the recent progress – is one of them. Linking the ability to use ESG in fund names to specific thresholds of investment seemed also to focus primarily on an exclusion approach in ESG investing, not even deemed to be the most effective when compared to engagement, impact, thematic and best in class investment approaches. Control on fund names nevertheless remains important because greenwashing lies also in a name that does not reflect the actual sustainability profile of a fund.  

What the Data Says on ESG in Fund Names 

Brilliant data analysis work carried out in our view by ESMA with this recent paper, gives some substance to the proposal to regulate ESG in fund names. The findings of the research are indeed interesting on this point. More and more funds are seen to include ESG terms in their names. Starting from 2017, many more funds have changed their name to include an ESG reference of sort. In cases where an ESG reference does exist in the name, that tends to be more general, to accommodate changes in strategy down the line in the course of the life of the fund. Also, most importantly, funds with ESG reference in their name tend to drive higher investor appetite relative to funds that do not bear the same reference.

Other interesting findings from the research revolve around the use of ESG terms also throughout the rest of the fund documentation. The research concludes that the funds that use ESG in their name though tend to have more copious related disclosure throughout the rest of the documentation, including precontractual documentation like the KIID or the KIDs. When that is the case, still according to the research, these funds tend to sell rather well with retail investors.  

Lastly, equity investing seems to have the most of ESG related language. The reason behind this seems to be associated with the fact that equity lends itself rather well to engagement type of approach, where a claim of sustainability is in fact more realistic relative to the mere exclusion investment style.  


Significant capital shifts towards truly sustainable investments, the ones that help transitioning to a green-er economy in Europe, are required for the sustainable finance revolution to really take place. Concurrently, the sustained effort made to implement SFDR and ESG in their strategies has to come with an increase in assets for fund managers. This explains the use so far of SFDR designations as ESG proxy labels. Where greenwashing is one of the supervisory priorities in Europe, fund names shall truly match the sustainability profile of a fund product to not be misleading.  

This recent work from ESMA is indicative of new regulatory trends in Europe. European authorities have scaled up their tools to police instances of greenwashing with renewed capabilities to obtain and analyse significant amount of data from publicly available sources. Notwithstanding the initial setback, it seems also that the regulation on the use of ESG terms in fund names will continue it course.  

Where the use of ESG terms in fund names is clearly not forbidden, the ones contemplating to exit the article 6 SFDR limbo shall pay particular attention in striking the right balance between the real sustainability profile of their strategies and the claims made for the funds, starting with the use of ESG terms in their names.  

Get in touch here with your contacts at Veneziano & Partners to see how we can help with ESG in Fund Names.

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