New European Union rules have forced many investment funds to drop the terms "sustainable" or "climate" from their names where they cannot deliver on the corresponding promises. The European guidelines, it must be said, do not oblige fund managers to build their portfolios more sustainably, notes the non-governmental organisation Finance Watch Germany (Finanzwende). Urgewald and Facing Finance carried out a joint assessment of more than 15,000 funds on the European market. It found that 674 funds whose previous names would (under the new rules) have required them to end their investments in fossil fuels have simply been renamed.

"What we are seeing is not a harmless rebranding," said Finance Watch representative Alison Schultz. Consumers had invested in these funds because they wanted to act sustainably. "Simply changing a name is no substitute for real change; it abuses investors' trust and diverts capital that ought in fact to be used for the ecological transformation," Schultz stressed. The report states that the organisations are now investigating whether funds required under the new rules to divest from hydrocarbons had actually done so by May this year.

The new guidelines of the European Securities and Markets Authority (ESMA) on fund naming practices using ESG (short for Environmental, Social and Governance. This is often referred to as sustainability. In a business context, sustainability relates to a company's business model, i.e. how its products and services contribute to sustainable development.) or other sustainability terms came into force back in 2024. The aim of the guidelines is to ensure that investors are protected against unsubstantiated or exaggerated sustainability claims in fund names. The guidelines also give asset managers clear and measurable criteria for assessing their ability to use ESG or sustainability-related terms in fund names. The guidelines stipulate that funds with certain sustainability terms in their names must exclude fossil fuel companies and must invest at least 80% of the fund's assets in line with the strategy indicated in the name, Finance Watch Germany announced.

Integrating finance into climate and energy policy has become a key task for governments around the world, because emission reduction plans require appropriate funding. Investments that could jeopardise the achievement of climate targets need to be reduced. The fight against misleading sustainability claims at various levels is an essential part of the European Union's strategy.